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

The Asia HY Trade Book for the month of November includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds in the Lucror Asia HY index.

  The Asia HY Trade Book for the month of November includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds in the Lucror Asia HY index. 

Asia HY Trade Book - November 2021 - Lucror Analytics

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Kaisa Defaults: On November 4, 2021, Kaisa Group Holdings (1638.HK) [Kaisa], which provided a guarantee on a wealth management product (WMP), disclosed that it had missed a payment - citing that “it is facing unprecedented liquidity pressure due to a challenging property market and rating downgrades”.  While the 25th largest developer by home sales in mainland China may not appear to be significant, Kaisa does have the second largest level of short-term debt due (USD 3.2 bn) after China Evergrande Group (3333.HK) [Evergrande] without any meaningful plan for repayment; and*We Await Evergrande’s Next Payments: We await official word on whether Evergrande’s Scenery Journey met its coupon payment of USD 82.5 mn due November 6, 2021, and we look toward the 30-day grace period expiry on a third set of bond interest payments of USD 148 mn due November 10, 2021.

*Kaisa Defaults: On November 4, 2021, Kaisa Group Holdings (1638.HK) [Kaisa], which provided a guarantee on a wealth management product (WMP), disclosed that it had missed a payment - citing that “it is facing unprecedented liquidity pressure due to a challenging property market and rating downgrades”.  While the 25th largest developer by home sales in mainland China may not appear to be significant, Kaisa does have the second largest level of short-term debt due (USD 3.2 bn) after China Evergrande Group (3333.HK) [Evergrande] without any meaningful plan for repayment; and*We Await Evergrande’s Next Payments: We await official word on whether Evergrande’s Scenery Journey met its coupon payment of USD 82.5 mn due November 6, 2021, and we look toward the 30-day grace period expiry on a third set of bond interest payments of USD 148 mn due November 10, 2021.   

In this month’s "In-Focus" section, we discuss the crisis of confidence in the Chinese property sector. The current situation was precipitated by a series of events, beginning with the introduction of the Three Red Lines policy in 2020. We also provide an overview of recent bond defaults. The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the "In-Focus" section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market.

  In this month’s "In-Focus" section, we discuss the crisis of confidence in the Chinese property sector. The current situation was precipitated by a series of events, beginning with the introduction of the Three Red Lines policy in 2020. We also provide an overview of recent bond defaults.   The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the "In-Focus" section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market. 

Asia HY Monthly - Chinese Property - Crisis Of Confidence - Lucror Analytics

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made another 11th hour interest payment of USD 47.6 mn to bondholders on Friday, October 29, 2021 – escaping another default by the skin of its teeth, just as its 30-day grace period with bondholders was about to end. While the market is worried about a China Huarong Asset Management (2799.HK) default crippling the country’s USD credit market, they too should understand that any bond default by Evergande likely roils this market as well; and*Watch Your Bank Risk: According to Bloomberg, Evergrande has already been in contact with its lenders to request loan maturity extensions, including: China Minsheng Bank (1988.HK), China Zheshang Bank (2016.HK), Shanghai Pudong Development Bank (600000.CH), and Citic Trust (267.HK).  There would appear to be a limited amount of budging by its lenders. Its main bank, Shenjang Bank (2066.HK) is also on the verge of announcing NPLs in the 20% plus range.

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made another 11th hour interest payment of USD 47.6 mn to bondholders on Friday, October 29, 2021 – escaping another default by the skin of its teeth, just as its 30-day grace period with bondholders was about to end. While the market is worried about a China Huarong Asset Management (2799.HK) default crippling the country’s USD credit market, they too should understand that any bond default by Evergande likely roils this market as well; and*Watch Your Bank Risk: According to Bloomberg, Evergrande has already been in contact with its lenders to request loan maturity extensions, including: China Minsheng Bank (1988.HK), China Zheshang Bank (2016.HK), Shanghai Pudong Development Bank (600000.CH), and Citic Trust (267.HK).  There would appear to be a limited amount of budging by its lenders. Its main bank, Shenjang Bank (2066.HK) is also on the verge of announcing NPLs in the 20% plus range. 

China Evergrande Group – Dodging Another Bullet

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Here we summarize frequently asked questions (FAQs) we were asked by the press this month on China Evergrande Group ( <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a> ) and recent credit events for Evergrande and other Chinese property developers.
If our last Evergrande report ( <a href="https://www.smartkarma.com/insights/china-evergrande-group-never-grand" target="_blank" data-smartkarma-citation="insights:58256" rel="noopener">China Evergrande Group:  Never Grand</a> , dated 29-Sep) is about the rationale of Evergrande’s default and the lessons learned from the event. This flash note is about the continued saga where we do not see the end in sight just yet. We maintain our opinion that Evergrande is too big for the Chinese government to ignore and even though the trigger of the saga is the Three Red Lines<a href="#_ftn1" target="_blank" rel="noopener">[1]</a>, the cause is Evergrande’s leverage itself.
The bottom line for us is that the credit crisis of Chinese property developers will be contained as we believe China’s political system empowers the regulators with heavy hands which will force collaborations among issuers, investors, and intermediaries. Oftentimes, these participants are either owned or influenced by the central or local government entities.
Evergrande missed the coupon payments on 23-Sep (for its EVERRE 3/22s) and 29-Sep (for its EVERRE 3/24s) but eventually serviced its payments within the 30-day grace period. The company also secured more than 3 months of a maturity extension of its already defaulted USD260m bonds issued by Jumbo Fortune Enterprises, Evergrande’s joint venture, The bonds, guaranteed by Evergrande, matured on 3-Oct and defaulted as there is no provision for a grace period.
We believe it is difficult to gauge Evergrande’s recovery rate and, at the price between mid 20s to 30 cents on the dollar, the EVERRE complex’s fair value is unknown. As such our UNDERWEIGHT recommendation on the complex remains unchanged.
 
 
<div>
 <hr align="left" size="1" width="33%">
<div id="ftn1">
<a href="#_ftnref1" target="_blank" rel="noopener">[1]</a>The Three Red Lines include the following: 
(1) A net gearing ratio of less than 100%; 
(2) Cash to short-term debt ratio of more than 1x; and 
(3) A total liability to total asset ratio (excluding advance receipts) of less than 70%.
 
</div>
</div>

Here we summarize frequently asked questions (FAQs) we were asked by the press this month on China Evergrande Group ( Evergrande (3333 HK) ) and recent credit events for Evergrande and other Chinese property developers.
If our last Evergrande report ( China Evergrande Group:  Never Grand , dated 29-Sep) is about the rationale of Evergrande’s default and the lessons learned from the event. This flash note is about the continued saga where we do not see the end in sight just yet. We maintain our opinion that Evergrande is too big for the Chinese government to ignore and even though the trigger of the saga is the Three Red Lines[1], the cause is Evergrande’s leverage itself.
The bottom line for us is that the credit crisis of Chinese property developers will be contained as we believe China’s political system empowers the regulators with heavy hands which will force collaborations among issuers, investors, and intermediaries. Oftentimes, these participants are either owned or influenced by the central or local government entities.
Evergrande missed the coupon payments on 23-Sep (for its EVERRE 3/22s) and 29-Sep (for its EVERRE 3/24s) but eventually serviced its payments within the 30-day grace period. The company also secured more than 3 months of a maturity extension of its already defaulted USD260m bonds issued by Jumbo Fortune Enterprises, Evergrande’s joint venture, The bonds, guaranteed by Evergrande, matured on 3-Oct and defaulted as there is no provision for a grace period.
We believe it is difficult to gauge Evergrande’s recovery rate and, at the price between mid 20s to 30 cents on the dollar, the EVERRE complex’s fair value is unknown. As such our UNDERWEIGHT recommendation on the complex remains unchanged.
 
 



[1]The Three Red Lines include the following: 
(1) A net gearing ratio of less than 100%; 
(2) Cash to short-term debt ratio of more than 1x; and 
(3) A total liability to total asset ratio (excluding advance receipts) of less than 70%.
 



China Evergrande Group:   Trick Without Treat

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)

Asia HY Trade Book - November 2021 - Lucror Analytics

The Asia HY Trade Book for the month of November includes a summary of our recommendations, as well as our high-conviction ideas. The report also...

Lucror Analytics

China Evergrande Group – Kaisa Rolled

EVERGRANDE: Kaisa missed a bond payment, and has the second largest level of short-term debt due. We await official word Evergrande’s Scenery...

Thomas J. Monaco

Asia HY Monthly - Chinese Property - Crisis Of Confidence - Lucror Analytics

In this month’s "In-Focus" section, we discuss the crisis of confidence in the Chinese property sector. The current situation was precipitated by...

Lucror Analytics

China Evergrande Group – Dodging Another Bullet

EVERGRANDE: Evergrande magically made another 11th hour interest payment of USD 47.6 mn to bondholders on October 29th – escaping default....

Thomas J. Monaco

China Evergrande Group: Trick Without Treat

Evergrande's Saga continues and EVERRE 22s rebounded 8 points. We believe the end is not in sights and see the bottom fishing as a gamble.

Bondcritic

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