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

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<li>
This Is Bad:Under mainland China’s real estate development law, the government has the right to repossess idle land sold to any developer without compensation; </li>
<li>
Chengdu and Haikou Start Deluge: At 1H21, Evergrande had land plots with an original value of CNY 456.8 bn (USD 71.7 bn); and</li>
<li>
Banks Eating This One:Without any compensation to Evergrande, mainland Chinese banks no doubt will finally have their hands forced in writing down their exposure to Evergrande and other developers.</li>
</ul>



This Is Bad:Under mainland China’s real estate development law, the government has the right to repossess idle land sold to any developer without compensation; 

Chengdu and Haikou Start Deluge: At 1H21, Evergrande had land plots with an original value of CNY 456.8 bn (USD 71.7 bn); and

Banks Eating This One:Without any compensation to Evergrande, mainland Chinese banks no doubt will finally have their hands forced in writing down their exposure to Evergrande and other developers.


<ul>
<li>
Muddy Waters and Beike: Tencent Holdings (700.HK) [Tencent] must deal with an allegation of “significant” fraud by short seller from Muddy Waters at a large investment: KE Holdings (BEKE.US) [Beike];</li>
<li>
Value At Risk: Tencent owns 11% of Beike’s outstanding shares, having a market value of USD 1.8 bn; and</li>
<li>
Fundamental and Regulatory Challenges Remain:Tencent still has numerous challenges: weaker revenues in its core business, mainland China’s clampdown on gaming/internet companies, and the reining-in of Fintech businesses.</li>
</ul>



Muddy Waters and Beike: Tencent Holdings (700.HK) [Tencent] must deal with an allegation of “significant” fraud by short seller from Muddy Waters at a large investment: KE Holdings (BEKE.US) [Beike];

Value At Risk: Tencent owns 11% of Beike’s outstanding shares, having a market value of USD 1.8 bn; and

Fundamental and Regulatory Challenges Remain:Tencent still has numerous challenges: weaker revenues in its core business, mainland China’s clampdown on gaming/internet companies, and the reining-in of Fintech businesses.


<ul>
<li>
”Restricted Default”: After missing two bond coupon payments, Fitch Ratings referred to China Evergrande Group (3333.HK) [Evergrande] as being in “restricted default”;</li>
<li>
Civil Litigation: Mainland Chinese creditors have filed 367 civil lawsuits with an aggregate claims value of USD 13.2 bn for overdue payments, as they compete with offshore bondholders; and</li>
<li>
Bank Risk: Shenjing Bank (2066.HK) has CNY 129.4 bn exposure to Evergrande, implying stated NPLs of 24.4%. Other bank creditors: China Minsheng, China Zheshang, Shanghai Pudong, and Citic Trust.</li>
</ul>



”Restricted Default”: After missing two bond coupon payments, Fitch Ratings referred to China Evergrande Group (3333.HK) [Evergrande] as being in “restricted default”;

Civil Litigation: Mainland Chinese creditors have filed 367 civil lawsuits with an aggregate claims value of USD 13.2 bn for overdue payments, as they compete with offshore bondholders; and

Bank Risk: Shenjing Bank (2066.HK) has CNY 129.4 bn exposure to Evergrande, implying stated NPLs of 24.4%. Other bank creditors: China Minsheng, China Zheshang, Shanghai Pudong, and Citic Trust.


China Evergrande Group – Bank Fallout Coming

Shimao Property Holdings / Equity Bottom-Up

<ul>
<li>
Liquidity Crisis:Shimao’s ability to cover short-term liquidity needs are very real, as it does not have the wherewithal to bridge the short-term funding gap;  </li>
<li>
Other Nuggets From Auditor: PWC suggests material valuation concerns exacerbate fundamental risks; and</li>
<li>
Left Holding The Bag:We have very little confidence that HSBC Holdings Plc (5.HK) and Bank of Communications (3328.HK) have marked their Shimao financings as NPL. Watch your bank risk.</li>
</ul>



Liquidity Crisis:Shimao’s ability to cover short-term liquidity needs are very real, as it does not have the wherewithal to bridge the short-term funding gap;  

Other Nuggets From Auditor: PWC suggests material valuation concerns exacerbate fundamental risks; and

Left Holding The Bag:We have very little confidence that HSBC Holdings Plc (5.HK) and Bank of Communications (3328.HK) have marked their Shimao financings as NPL. Watch your bank risk.


Shimao Property Holdings – Here We Go Again

<ul>
<li>
Fundamental/Regulatory Constraints: Tencent Holdings (700.HK) [Tencent]  has many challenges: weaker revenues attributed to both a slowing economy and mainland China’s clampdown on internet companies, and the reining-in of Fintech;</li>
<li>
Litigation:A class action has been filed on behalf of investors who purchased Tencent Music Entertainment Group (TME.US) ADRs, alleging that two prime brokers illegally traded in TME shares; and</li>
<li>
Deniability: Tencent and TME have an awful lot of hair and the timing of the regulatory screw tightening on Tencent’s businesses was intensifying just as the Archegos situation unraveled.   </li>
</ul>



Fundamental/Regulatory Constraints: Tencent Holdings (700.HK) [Tencent]  has many challenges: weaker revenues attributed to both a slowing economy and mainland China’s clampdown on internet companies, and the reining-in of Fintech;

Litigation:A class action has been filed on behalf of investors who purchased Tencent Music Entertainment Group (TME.US) ADRs, alleging that two prime brokers illegally traded in TME shares; and

Deniability: Tencent and TME have an awful lot of hair and the timing of the regulatory screw tightening on Tencent’s businesses was intensifying just as the Archegos situation unraveled.   


China

iShares FTSE A50 China Index ETF is an exchanged-traded fund established in Hong Kong. The investment objective of the iShares FTSE A50 China Index ETF is to provide investment results that, before fees and expenses, closely correspond to the performance of A50 Index.

iShares FTSE/Xinhua A50 China (2823 HK)

China Evergrande – Repo’d

EVERGRANDE: Under mainland China law, the government can repossess idle land sold to developers without compensation. Mainland Chinese banks no...

Thomas J. Monaco

Tencent Holdings – Adding To Its Woes

TENCENT: Tencent must now deal with a “significant” fraud allegation at its investment, Beike. Tencent owns 11% of Beike’s outstanding shares,...

Thomas J. Monaco

China Evergrande Group – Bank Fallout Coming

EVERGRANDE: Fitch declared Evergrande in “restricted default”. 367 civil actions have been filed, as they compete with offshore bondholders. Most...

Thomas J. Monaco

Shimao Property Holdings – Here We Go Again

SHIMAO PROPERTY: Shimao, in our view, does not have the wherewithal to bridge the short-term funding gap. Further, the auditor suggests that...

Thomas J. Monaco

Tencent Holdings – Dirty Birds

TENCENT: Tencent has many challenges already. A class action has been filed on behalf of investors who purchased Tencent Music ADRs, alleging that...

Thomas J. Monaco