Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

The NPCSC pushed forward with the property tax by granting the State Council authority to pilot it in certain regions for five years with the purpose to guide reasonable property consumption.
China has discussed the property tax plan and even launched pilot programs in Shanghai and Southwest China's Chongqing as early as 2011. The widening of the property pilot progamme would shake the real estates market,property-related industries, such as the steel and cement sectors. However,the tax may be neutral over the long-term for developers due to the expectation that the existing administrative controlling measures would be gradually removed after the implementation of the tax. Moreover, tax burdens would be moved from the construction stage to home transaction and holding phases, i.e. from developers to homeowners/ speculators.

The NPCSC pushed forward with the property tax by granting the State Council authority to pilot it in certain regions for five years with the purpose to guide reasonable property consumption.
China has discussed the property tax plan and even launched pilot programs in Shanghai and Southwest China's Chongqing as early as 2011. The widening of the property pilot progamme would shake the real estates market,property-related industries, such as the steel and cement sectors. However,the tax may be neutral over the long-term for developers due to the expectation that the existing administrative controlling measures would be gradually removed after the implementation of the tax. Moreover, tax burdens would be moved from the construction stage to home transaction and holding phases, i.e. from developers to homeowners/ speculators.

State Council to Pilot Property Tax in Certain Regions for Five Years

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

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made an 11th hour interest payment of USD 83.5 mn to bondholders on Friday, October 22, 2021 – escaping 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* Worrisome Comments By  PBOC Governor Yi: The mainland Chinese government rarely comments on a single entity, which is why Governor Yi’s thoughts are alarming. “First, we’re going to try to prevent contagion to other real estate companies. Second, we’ll prevent contagion to other parts of the financial sector.” This self-inflicted wound will require a tourniquet to stop the bleeding; expect non-D-SIFI bank and insurer failures in mainland China.

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made an 11th hour interest payment of USD 83.5 mn to bondholders on Friday, October 22, 2021 – escaping 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* Worrisome Comments By  PBOC Governor Yi: The mainland Chinese government rarely comments on a single entity, which is why Governor Yi’s thoughts are alarming. “First, we’re going to try to prevent contagion to other real estate companies. Second, we’ll prevent contagion to other parts of the financial sector.” This self-inflicted wound will require a tourniquet to stop the bleeding; expect non-D-SIFI bank and insurer failures in mainland China.

China Evergrande Group – China’s Wrecking Ball

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Singapore Air, Evergrande/Hopson, HomeCo/Aventus, Irongate, Shinsei Bank

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

On 22 October 2021, <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a><a href="https://www.ft.com/content/fb495500-b760-4e61-8327-110ef55c29b8" target="_blank" rel="noopener">repaid</a> a missed coupon payment on an a dollar bond.  This came a day ahead of the expiry of a 30-day grace period following the missed payment, and Evergrande averted a bond default. 
However, this by no means removes uncertainty surrounding subsequent due coupon payments, including the <a href="https://www.wsj.com/articles/china-evergrande-makes-overdue-interest-payment-on-dollar-bonds-state-media-says-11634869419" target="_blank" rel="noopener">USD45 million coupon payment</a> due next Friday (29 Oct).  Further, in the immediate month ahead, offshore bond coupons in excess of USD420 million falls due and payable. 
Even if Evergrande could meet these coupon payments, the property behemoth then <a href="https://www.bloomberg.com/news/articles/2021-10-22/evergrande-pays-bond-interest-due-saturday-local-media-says?srnd=premium-asia&amp;sref=pfTy75y8" target="_blank" rel="noopener">faces</a> at least a USD7.4 billion wall of debt maturing in 2022. To a certain extent, Evergrande paying the latest USD83.5 million coupon payment takes a hefty slice out of a shrinking pie of available funds which could otherwise be used to meet future principal debt obligations.
In this Insight, we discuss why a debt moratorium, which is a standard provision under most jurisdictions' insolvency and restructuring regimes, would provide a much needed relief and allow Evergrande and/or its administrators (if appointed) to conduct an orderly restructuring.
We also highlight the obvious challenges of taking this approach including the cross-border debt, creditor profile, and jurisdictional differences, as well as juggling the social and systemic concerns that are being contended with, and discuss how potentially they can be overcome.

On 22 October 2021, Evergrande (3333 HK)repaid a missed coupon payment on an a dollar bond.  This came a day ahead of the expiry of a 30-day grace period following the missed payment, and Evergrande averted a bond default. 
However, this by no means removes uncertainty surrounding subsequent due coupon payments, including the USD45 million coupon payment due next Friday (29 Oct).  Further, in the immediate month ahead, offshore bond coupons in excess of USD420 million falls due and payable. 
Even if Evergrande could meet these coupon payments, the property behemoth then faces at least a USD7.4 billion wall of debt maturing in 2022. To a certain extent, Evergrande paying the latest USD83.5 million coupon payment takes a hefty slice out of a shrinking pie of available funds which could otherwise be used to meet future principal debt obligations.
In this Insight, we discuss why a debt moratorium, which is a standard provision under most jurisdictions' insolvency and restructuring regimes, would provide a much needed relief and allow Evergrande and/or its administrators (if appointed) to conduct an orderly restructuring.
We also highlight the obvious challenges of taking this approach including the cross-border debt, creditor profile, and jurisdictional differences, as well as juggling the social and systemic concerns that are being contended with, and discuss how potentially they can be overcome. 

After Near-Miss, Evergrande (3333 HK) Needs a Debt Moratorium

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-2036'>Central China Securities</a></li><li><a href='#lucror-entity-479'>Evergrande</a></li><li><a href='#lucror-entity-16899'>Modern Land China</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 SecuritiesEvergrandeModern Land China

Morning Views Asia: Central China Securities, Evergrande, Modern Land China

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)

State Council to Pilot Property Tax in Certain Regions for Five Years

The widen of property tax pilot progamme would shake the real estates market,property-related industries, such as the steel and cement sectors.

Li Tang

China Evergrande Group – China’s Wrecking Ball

EVERGRANDE: Evergrande magically made an interest payment to bondholders, escaping default by the skin of its teeth. This self-inflicted wound...

Thomas J. Monaco

Last Week in Event SPACE: Singapore Air, Evergrande/Hopson, HomeCo/Aventus, Irongate, Shinsei Bank

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

After Near-Miss, Evergrande (3333 HK) Needs a Debt Moratorium

We discuss why a debt moratorium, a standard provision in restructurings, would provide much needed relief and facilitate an orderly restructuring...

Jason Yap, CFA

Morning Views Asia: Central China Securities, Evergrande, Modern Land China

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

Lucror Analytics

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