Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.
<ul>
<li><a href="#lucror-entity-27942" target="_blank" rel="noopener">Agile</a></li>
<li><a href="#lucror-entity-16010" target="_blank" rel="noopener">Agung Podomoro Land</a></li>
<li><a href="#lucror-entity-713" target="_blank" rel="noopener">Evergrande Auto</a></li>
</ul>

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

Agile
Agung Podomoro Land
Evergrande Auto


Morning Views Asia: Agile, Agung Podomoro Land, Evergrande Auto

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Media reports from Bloomberg and other sources suggest that <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> has launched an equity placement - a so-called top-up placement - for 490 million shares at a price of HK$16.50-17.20, or an 11.1-14.7% discount to the last traded price of $19.34/share. There is apparently an upsize option of an additional 120mm shares.This offer appears scheduled to raise up to US$1.043-1.087bn in funds with US$255mm more from the upsize option if done at the lower end of the range. The news surrounding Evergrande recently has been less than salutary for investors. Despite highly bullish commentary around unofficial and unaudited figures in early July which appeared to have sent the shares soaring nearly 40% in 3 days to HK$28/share, several weeks later on 16 August the company released a profit warning and results came out the 31st of August. On the 13th Evergrande had sold a US$3bn stake in its property management vehicle, sold another block in <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Auto (708 HK)</a>, was preparing a near-term listing of its property management entity and was looking to conduct a large offering for Evergrande Auto on the Star Board.  Hints of further ugliness came out in the last days of August and early days of September when it was reported that a dozen real estate developers had been called into a meeting 20 August to let them know they had been chosen to participate (participation not optional) in a pilot programme which restricted lending growth to companies which did not cross Three Red Lines which were...<ol style="list-style-type: decimal;">
<li>a liability-to-asset ratio (excluding pre-sales) of 70%,</li>
<li>a net debt-to-equity ratio of 100%, and</li>
<li>cash holdings equal to 100% of short-term debt.</li>
</ol>Evergrande handily beats all three and therefore would be restricted from new borrowings (including increase outstanding debt to pay the coupons on existing debt). This means that Evergrande needs to de-lever. It reportedly has started doing so since earlier this year but it is not clear what the necessary reference points are and where Evergrande stands in relation to those reference points in terms of showing that it is making progress (if it doesn't meet the Three Red Lines thresholds, it needs to show it is making progress towards doing so in future). The last straw was the <a href="https://uk.reuters.com/article/china-evergrande/chinas-no-2-developer-evergrande-pleads-for-government-support-to-avoid-cash-crunch-idINL3N2GL2H9" target="_blank" rel="noopener">reported</a> letter (which Evergrande <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0924/2020092401313.pdf" target="_blank" rel="noopener">denied existed</a>) which had asked the Guangdong government for assistance in aligning its debt obligations and repayment schedule so that unwanted disruption and confusion in the marketplace did not occur (those tracking this story may have a slightly more blunt way of phrasing this). There was also the matter of the 3yr expiry of the Hengda equity putback coming in January 2021 if that business were not listed. This too caused consternation in the market. All of this was discussed in <a href="https://www.smartkarma.com/insights/evergrande-may-be-facing-a-funding-squeeze" target="_blank" data-smartkarma-citation="insights:43592" rel="noopener">Evergrande May Be Facing a Funding Squeeze</a> on 27 September.Following the news coverage, shares dropped sharply, the bonds traded weaker, but a few days later Evergrande somehow <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0929/2020092900829.pdf" target="_blank" rel="noopener">managed to convince</a> a large chunk of the equity financiers of Hengda to roll their ownership/funding for another year. That helped keep the wolves at bay for Jan 2021 but Evergrande still has a long way to go to be able to cross the Three Red Lines in the other direction. Asset sales and equitization are paramount, and along those lines, on 29 September Evergrande <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0929/2020092901436.pdf" target="_blank" rel="noopener">submitted its listing application</a> to the Hong Kong Stock Exchange to list Evergrande Property Services Group. More money is on the way. <h2>Today's NEW News</h2>Evergrande has announced an equity offering to raise cash for "refinancing and working capital." The thing is, US$1.1bn or even US$1.35bn won't cut it. Evergrande has RMB 820+bn of short-term and long-term interest-bearing debt, extended accounts payable, and the Hengda contingent liability floating around. This is nothing. So why are they doing it?That's the thing. There IS a reason. It appears obvious to me. And it doesn't make the stock more investible. More below the fold.

Media reports from Bloomberg and other sources suggest that Evergrande Real Estate Group (3333 HK) has launched an equity placement - a so-called top-up placement - for 490 million shares at a price of HK$16.50-17.20, or an 11.1-14.7% discount to the last traded price of $19.34/share. There is apparently an upsize option of an additional 120mm shares.This offer appears scheduled to raise up to US$1.043-1.087bn in funds with US$255mm more from the upsize option if done at the lower end of the range. The news surrounding Evergrande recently has been less than salutary for investors. Despite highly bullish commentary around unofficial and unaudited figures in early July which appeared to have sent the shares soaring nearly 40% in 3 days to HK$28/share, several weeks later on 16 August the company released a profit warning and results came out the 31st of August. On the 13th Evergrande had sold a US$3bn stake in its property management vehicle, sold another block in Evergrande Auto (708 HK), was preparing a near-term listing of its property management entity and was looking to conduct a large offering for Evergrande Auto on the Star Board.  Hints of further ugliness came out in the last days of August and early days of September when it was reported that a dozen real estate developers had been called into a meeting 20 August to let them know they had been chosen to participate (participation not optional) in a pilot programme which restricted lending growth to companies which did not cross Three Red Lines which were...
a liability-to-asset ratio (excluding pre-sales) of 70%,
a net debt-to-equity ratio of 100%, and
cash holdings equal to 100% of short-term debt.
Evergrande handily beats all three and therefore would be restricted from new borrowings (including increase outstanding debt to pay the coupons on existing debt). This means that Evergrande needs to de-lever. It reportedly has started doing so since earlier this year but it is not clear what the necessary reference points are and where Evergrande stands in relation to those reference points in terms of showing that it is making progress (if it doesn't meet the Three Red Lines thresholds, it needs to show it is making progress towards doing so in future). The last straw was the reported letter (which Evergrande denied existed) which had asked the Guangdong government for assistance in aligning its debt obligations and repayment schedule so that unwanted disruption and confusion in the marketplace did not occur (those tracking this story may have a slightly more blunt way of phrasing this). There was also the matter of the 3yr expiry of the Hengda equity putback coming in January 2021 if that business were not listed. This too caused consternation in the market. All of this was discussed in Evergrande May Be Facing a Funding Squeeze on 27 September.Following the news coverage, shares dropped sharply, the bonds traded weaker, but a few days later Evergrande somehow managed to convince a large chunk of the equity financiers of Hengda to roll their ownership/funding for another year. That helped keep the wolves at bay for Jan 2021 but Evergrande still has a long way to go to be able to cross the Three Red Lines in the other direction. Asset sales and equitization are paramount, and along those lines, on 29 September Evergrande submitted its listing application to the Hong Kong Stock Exchange to list Evergrande Property Services Group. More money is on the way. Today's NEW NewsEvergrande has announced an equity offering to raise cash for "refinancing and working capital." The thing is, US$1.1bn or even US$1.35bn won't cut it. Evergrande has RMB 820+bn of short-term and long-term interest-bearing debt, extended accounts payable, and the Hengda contingent liability floating around. This is nothing. So why are they doing it?That's the thing. There IS a reason. It appears obvious to me. And it doesn't make the stock more investible. More below the fold. 

Evergrande Equity Placement - Musical Shares

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> plans to raise upto US$1bn via a top-up placement.  The stock has been in the news over the past month for not exactly the right reasons. Given its debt woes, the current capital raising is unlikely to do much on a fundamental level. While the discount being offered looks tempting, especially versus the dilution, all of the past deals in the name haven't done well.

Evergrande Real Estate Group (3333 HK) plans to raise upto US$1bn via a top-up placement.  The stock has been in the news over the past month for not exactly the right reasons. Given its debt woes, the current capital raising is unlikely to do much on a fundamental level. While the discount being offered looks tempting, especially versus the dilution, all of the past deals in the name haven't done well. 

China Evergrande Placement - Looks Tempting but It's a Drop in the Ocean of Debt, During a Typhoon

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.<ul><li><a href='#lucror-entity-28953'>Central China New Life</a></li><li><a href='#lucror-entity-713'>Evergrande Auto</a></li><li><a href='#lucror-entity-433'>Fosun International</a></li><li><a href='#lucror-entity-1776'>Indika Energy</a></li><li><a href='#lucror-entity-18561'>JSW Steel Ltd</a></li><li><a href='#lucror-entity-21047'>Ronshine China Holdings</a></li></ul>

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.Central China New LifeEvergrande AutoFosun InternationalIndika EnergyJSW Steel LtdRonshine China Holdings

Morning Views Asia: Central China New Life, Evergrande Auto, Fosun International, Indika Energy

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Cross Asset Strategy

<ul>
<li>After 3 months of consistent decline, our China Property Sentiment Indicator is showing notable signs of recovery</li>
<li>News attribution suggests this is primarily driven by decreasing negative coverage as the Evergrande liquidity crisis was averted limiting broader contagion; continued momentum on developer spin-offs of property management subsidiaries; and strong Golden Week consumption metrics related to home furnishings &amp; building products (a secondary parameter in our indicator)</li>
<li>Our text mining already incorporates recent negative news on shrinking land premiums, as well as coverage on (expectedly) heavy discounting during Golden Week sales; but the overall tone of coverage remains "less negative" in the month-to-date</li>
<li>The TMI China Property Sentiment Indicator has been 58% correlated with Chinese real estate equities (via CHIR ETF), 40%-54% with Chinese HY (via KCCB ETF), and 65% with copper prices (on a T24M basis)</li>
</ul><div class="content-highlight">TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </div>


After 3 months of consistent decline, our China Property Sentiment Indicator is showing notable signs of recovery
News attribution suggests this is primarily driven by decreasing negative coverage as the Evergrande liquidity crisis was averted limiting broader contagion; continued momentum on developer spin-offs of property management subsidiaries; and strong Golden Week consumption metrics related to home furnishings &amp; building products (a secondary parameter in our indicator)
Our text mining already incorporates recent negative news on shrinking land premiums, as well as coverage on (expectedly) heavy discounting during Golden Week sales; but the overall tone of coverage remains "less negative" in the month-to-date
The TMI China Property Sentiment Indicator has been 58% correlated with Chinese real estate equities (via CHIR ETF), 40%-54% with Chinese HY (via KCCB ETF), and 65% with copper prices (on a T24M basis)
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Snapshots: China Property Sentiment Indicators Recover Post "Three Red Lines" & Evergrande Drama

China

China Evergrande Group is an integrated residential property developer. The Company, through its subsidiaries, operates in property development, investment, management, finance, internet, health, culture, and tourism markets.

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Evergrande (3333 HK)

Morning Views Asia: Agile, Agung Podomoro Land, Evergrande Auto

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region,...

Lucror Analytics

Evergrande Equity Placement - Musical Shares

Media reports say Evergrande launched an Equity Offering to raise US$1.1bn. This is not enough to pay down RMB 450bn in debt overall or pay back...

Travis Lundy

China Evergrande Placement - Looks Tempting but It's a Drop in the Ocean of Debt, During a Typhoon

Evergrande plans to raise upto US$1bn via a top-up placement. The stock has been in the news over the past month for not exactly the right reasons.

Sumeet Singh

Morning Views Asia: Central China New Life, Evergrande Auto, Fosun International, Indika Energy

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region,...

Lucror Analytics

TMI Snapshots: China Property Sentiment Indicators Recover Post "Three Red Lines" & Evergrande Drama

After 3 months of consistent slowdown and a dip into outright negative territory, our China Property Indicator is showing signs of recovery News...

Elan Gore

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