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

<ul>
<li>
Special Dividend: On December 23, 2021, Tencent Holdings (700.HK) [Tencent] announced that it is planning to distribute USD 16.3 bn in JD.com (JD.US) [JD] Class A shares; </li>
<li>
Not A Surprise:Given mainland China’s crackdown on the country’s largest internet companies, Tencent’s disposal of JD shares is not a surprise; and</li>
<li>
Other Stake Sales To Follow: Further divestitures of major stakes are likely if Tencent wishes to remain on the right side of mainland China’s Communist Party.  </li>
</ul>



Special Dividend: On December 23, 2021, Tencent Holdings (700.HK) [Tencent] announced that it is planning to distribute USD 16.3 bn in JD.com (JD.US) [JD] Class A shares; 

Not A Surprise:Given mainland China’s crackdown on the country’s largest internet companies, Tencent’s disposal of JD shares is not a surprise; and

Other Stake Sales To Follow: Further divestitures of major stakes are likely if Tencent wishes to remain on the right side of mainland China’s Communist Party.  


<ul>
<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

Hong Kong

iShares MSCI Hong Kong ETF is an exchange-traded fund incorporated in the USA. The ETF's objective seeks to provide investment results that correspond to the performance of publicly traded securities in the Hong Kong market, as measured by the MSCI Hong Kong Index. The ETF invests in a representative sample of index stocks using a "portfolio sampling" technique.

iShares MSCI Hong Kong ETF (EWH US)

Tencent Holdings – Bottom Ticking

TENCENT: Tencent announced that it is planning to distribute USD 16.3 bn in JD shares. Given mainland China’s crackdown on Tencent, the disposal is...

Thomas J. Monaco

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