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

* New Transaction In Australia: On November 7, 2021, Link REIT (823.HK) [Link] announced a proposed acquisition of a 50% stake three shopping malls in Sydney for AUD 538 mn or HKD 3.3 bn, in a deal where it has no control of the properties;  * Limited Disclosure Raises Eyebrows: Link did not disclose the annual income on the properties, nor the projected tenant lease expiry and changes in foot traffic between pre and post COVID-19; and  *Hong Kong Pressures Are Very Apparent: This transaction so far away from Link REIT’s core competency that it speaks volumes as to where it believes its core Hong Kong retail business is heading. This doesn’t seem like smart diversification and smells more of panic leverage when one considers the thre price and location of this deal.

 * New Transaction In Australia: On November 7, 2021, Link REIT (823.HK) [Link] announced a proposed acquisition of a 50% stake three shopping malls in Sydney for AUD 538 mn or HKD 3.3 bn, in a deal where it has no control of the properties;  * Limited Disclosure Raises Eyebrows: Link did not disclose the annual income on the properties, nor the projected tenant lease expiry and changes in foot traffic between pre and post COVID-19; and  *Hong Kong Pressures Are Very Apparent: This transaction so far away from Link REIT’s core competency that it speaks volumes as to where it believes its core Hong Kong retail business is heading. This doesn’t seem like smart diversification and smells more of panic leverage when one considers the thre price and location of this deal. 

*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.   

China Pacific Insurance / Equity Bottom-Up

*Weak 3Q21 Results: China Pacific Insurance (2601.HK) (CPIC) reported 3Q21 results of CNY 5.4 bn, declining CNY 3.4 bn (38.5%) linked quarter. Profitability was hurt by both the Life and P&amp;C units, which declined CNY 3.9 bn (52.4%) and CNY 156 mn (10.6%), respectively, to CNY 3.6 bn and CNY 1.3 bn; and*Troubles Continue In Life: During 3Q21, first year premium (FYP) agent per month declined by 41.0% linked quarter largely due to CPIC relying more on online channels to conduct new sales, and intimating agency distribution remained a challenge.The new CEO of CPIC Life mentioned that a new agency restructure will be implemented beginning January 1, 2022.

*Weak 3Q21 Results: China Pacific Insurance (2601.HK) (CPIC) reported 3Q21 results of CNY 5.4 bn, declining CNY 3.4 bn (38.5%) linked quarter. Profitability was hurt by both the Life and P&amp;C units, which declined CNY 3.9 bn (52.4%) and CNY 156 mn (10.6%), respectively, to CNY 3.6 bn and CNY 1.3 bn; and*Troubles Continue In Life: During 3Q21, first year premium (FYP) agent per month declined by 41.0% linked quarter largely due to CPIC relying more on online channels to conduct new sales, and intimating agency distribution remained a challenge.The new CEO of CPIC Life mentioned that a new agency restructure will be implemented beginning January 1, 2022.

China Pacific Insurance – Life Troubles

*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

Postal Savings Bank of China C / Equity Bottom-Up

*Blowout 3Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB], mainland China’s youngest large commercial bank, reported 3Q21 bottom-line results of CNY 23.5 bn – increasing CNY 3.7 bn (18.6%) linked quarter. Much of the improvement at PSB is due to credit leverage, as loss provisions declined CNY 9.3 bn (54.3%); and*Credit Quality Continues Its Positive Turn, But Reserves More Than Adequate: Net new NPLs did increase CNY 7.8 bn or 61.0% annualized versus CNY 14.9 bn or 116.6% at 2Q21. Despite the increase in net new NPLs, it would appear that PSB’s reserves would remain excessive to the tune of CNY 100 bn or about a year of pre-tax profits – begging the question of why not reverse loss reserves?

*Blowout 3Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB], mainland China’s youngest large commercial bank, reported 3Q21 bottom-line results of CNY 23.5 bn – increasing CNY 3.7 bn (18.6%) linked quarter. Much of the improvement at PSB is due to credit leverage, as loss provisions declined CNY 9.3 bn (54.3%); and*Credit Quality Continues Its Positive Turn, But Reserves More Than Adequate: Net new NPLs did increase CNY 7.8 bn or 61.0% annualized versus CNY 14.9 bn or 116.6% at 2Q21. Despite the increase in net new NPLs, it would appear that PSB’s reserves would remain excessive to the tune of CNY 100 bn or about a year of pre-tax profits – begging the question of why not reverse loss reserves?

Postal Savings Bank of China – Reserve Reversals Expected

Hong Kong

CSOP FTSE China A50 ETF is an exchange-traded fund incorporated in Hong Kong. The Fund seeks to track the performance of the FTSE China A50 Index. The Fund invests most of its total assets in the equities of member companies of the FTSE China A50 Index. This is a RQFII fund.

CSOP FTSE China A50 (HKD) (2822 HK)

Link REIT – Another Odd Deal

LINK REIT: Link announced a proposed acquisition of a 50% stake three shopping malls in Sydney for HKD 3.3 bn, in a deal where it has no control of...

Thomas J. Monaco

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

China Pacific Insurance – Life Troubles

CHINA PACIFIC: CPIC reported a 3Q21 QOQ results decline of 38.5%, driven by both the Life and P&C units. The new CEO of CPIC Life mentioned that a...

Thomas J. Monaco

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

Postal Savings Bank of China – Reserve Reversals Expected

POSTAL SAVINGS BANK: PSB's QOQ 3Q21 increased 18.6%, due largely to credit leverage and net interest income improvement. PSB’s reserves appear...

Thomas J. Monaco