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

In this month’s “In-Focus” section, we consider China’s new Three Red Lines leverage guidelines for developers, which have been rolled out on a limited basis. We also look at the context for the policy’s introduction and its implications on credit access for industry players at large.  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 consider China’s new Three Red Lines leverage guidelines for developers, which have been rolled out on a limited basis. We also look at the context for the policy’s introduction and its implications on credit access for industry players at large.    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 - China's Three Red Lines - Lucror Analytics

The Asia HY Trade Book for the month of September 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 September 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 - September 2020 - Lucror Analytics

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Stories appeared Thursday in China talking about (and showing a picture of) a purported letter from <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> to the Guangdong government dated 24 August asking for assistance in restructuring. The letter is reported to have said that its cashflow would be endangered because of a need to repay RMB 130 billion to strategic investors by end January 2021 if Evergrande did not achieve a backdoor listing of its principal mainland subsidiary Hengda Real Estate (which it has been trying to do for three years by injecting Hengda into Shenzhen-listed Shenzhen Special Economic Zone Real Estate &amp; Properties Group Co. Ltd.), and such asset sales and lack of ability to raise debt would impair the smooth functioning of the real estate and loan market. The letter asks for assistance in moving forward the listing plan, despite the fact that this would break the informal ban on listing new real estate companies on local exchanges.I refer to media reports about this story in <a href="https://www.bloomberg.com/news/articles/2020-09-24/evergrande-warns-of-looming-liquidity-crunch-spooking-investors" target="_blank" rel="noopener">Bloomberg</a>, <a href="https://www.caixinglobal.com/2020-09-25/china-developer-evergrande-denies-its-seeking-government-support-101609336.html" target="_blank" rel="noopener">Caixin Global</a>, <a href="https://uk.reuters.com/article/china-evergrande/chinas-no-2-developer-evergrande-pleads-for-government-support-to-avoid-cash-crunch-idINL3N2GL2H9" target="_blank" rel="noopener">Reuters</a>, and others about the purported letter.Evergrande issued a SOLEMN DECLARATION via the HKEX Friday night. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/161/716/original/Screenshot%202020-09-25%20at%2012.30.05%20PM.png?1601008218" class="editor-image img-responsive" data-smartkarma-image-id="161716"></figure>The story introduced a fair bit of volatility in trading Friday 25 September 2020. The shares fell early, rose to be +6% on the day, then fell sharply - at one point -14.6% on the day.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/161/768/original/Screenshot%202020-09-25%20at%208.28.09%20PM.png?1601036926" class="editor-image img-responsive" data-smartkarma-image-id="161768"></figure>194.7 million shares traded. That is the highest in more than 3 years, and represents over 13% of the Real World Float of the company. The stock ended down 9.5% on the day. <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">China Evergrande New Energy Vehicle Group (708 HK)</a> was down 13% on Friday. The whole China real estate developer sector listed in Hong Kong fell in a sea of red. Bloomberg <a href="https://www.bloomberg.com/news/articles/2020-09-25/evergrande-faces-crisis-of-confidence-over-120-billion-debt?sref=ZEpEDN5v" target="_blank" rel="noopener">reported</a> the dollar bonds of Evergrande were the worst performer in the Bloomberg Barclays Asia Dollar Bond index. And the domestic bonds fell sharply, with a yuan bond due 2022 falling 18% to RMB 77.7 and a 2024 dropping 30% to 65.9 yuan, with trading reportedly suspended. The company came out again on Friday to say that business was doing OK. But clearly, some people see an issue.Much more below the fold.<div></div>

Stories appeared Thursday in China talking about (and showing a picture of) a purported letter from Evergrande Real Estate Group (3333 HK) to the Guangdong government dated 24 August asking for assistance in restructuring. The letter is reported to have said that its cashflow would be endangered because of a need to repay RMB 130 billion to strategic investors by end January 2021 if Evergrande did not achieve a backdoor listing of its principal mainland subsidiary Hengda Real Estate (which it has been trying to do for three years by injecting Hengda into Shenzhen-listed Shenzhen Special Economic Zone Real Estate &amp; Properties Group Co. Ltd.), and such asset sales and lack of ability to raise debt would impair the smooth functioning of the real estate and loan market. The letter asks for assistance in moving forward the listing plan, despite the fact that this would break the informal ban on listing new real estate companies on local exchanges.I refer to media reports about this story in Bloomberg, Caixin Global, Reuters, and others about the purported letter.Evergrande issued a SOLEMN DECLARATION via the HKEX Friday night. The story introduced a fair bit of volatility in trading Friday 25 September 2020. The shares fell early, rose to be +6% on the day, then fell sharply - at one point -14.6% on the day.194.7 million shares traded. That is the highest in more than 3 years, and represents over 13% of the Real World Float of the company. The stock ended down 9.5% on the day. China Evergrande New Energy Vehicle Group (708 HK) was down 13% on Friday. The whole China real estate developer sector listed in Hong Kong fell in a sea of red. Bloomberg reported the dollar bonds of Evergrande were the worst performer in the Bloomberg Barclays Asia Dollar Bond index. And the domestic bonds fell sharply, with a yuan bond due 2022 falling 18% to RMB 77.7 and a 2024 dropping 30% to 65.9 yuan, with trading reportedly suspended. The company came out again on Friday to say that business was doing OK. But clearly, some people see an issue.Much more below the fold.

Evergrande May Be Facing a Funding Squeeze

<a href="https://www.smartkarma.com/entities/nam-tai-property-inc" target="_blank" data-smartkarma-citation="entities:29275:1" rel="noopener">Nam Tai Property Inc (NTP US)</a> has been the stomping ground for a small US-based activist and a few other shareholders since last year with one shareholder IsZo Capital LP there as the top independent shareholder since 2017, and "public" since filing a 13G in February 2019. Nam Tai Property - founded in 1975 - was originally an electronics company based in Shenzhen. It changed its name to Nam Tai Property in 2014. It is listed, somewhat oddly, on the NYSE.In May, IsZo Capital - which at the time owned 9.8% of shares out vs 6.68% at end-December - sent the company a <a href="https://www.prnewswire.com/news-releases/iszo-capital-lp-releases-an-open-letter-to-nam-tai-property-inc-shareholders-301066020.html" target="_blank" rel="noopener">letter</a> which it also released to the public. IsZo was upset that Nam Tai was trading at only about US$4.05 at the time, which was a 70% decline since the share price in January 2018, 28 months earlier, when <a href="https://www.smartkarma.com/entities/kaisa-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:169:1" rel="noopener">Kaisa Group Holdings (1638 HK)</a> replaced the CEO with Ying Chi Kwok who was the younger brother of the CEO of Kaisa (and himself owns 13.8% of Kaisa). Kaisa had themselves bought in at just under US$17/share, paying CNY 750mm for 6.5mm shares held by then-lead shareholders Koo Ming Kown and Cho Sui Sin. They bought another 1.1mm shares in the quarter and then another 1.583mm in Q4 2017 to get to the current position of 9.191mm shares. That was 25.01% when they got there but ESOP plans have dropped that to 23.61% now.Before the letter in May, IsZo had been rallying shareholders to its cause, and the register saw significant turnover, presumably towards shareholders friendly to the activist cause. The letter WAS on a <a href="https://fixntp.com/resources/" target="_blank" rel="noopener">website</a> (<a href="https://fixntp.com" target="_blank" rel="noopener">https://fixntp.com</a>) that IsZo put up but it is no longer there. The letter itself explained issues with Kaisa's history and conflicted ownership and called on shareholders to reconstitute the Board and remove Kaisa insiders from leadership roles, proposing a slate. Another fund, Railroad Ranch Capital, wrote a <a href="https://www.railroadranchcapital.com/ntp" target="_blank" rel="noopener">letter</a> in June 2020 supporting IsZo's proposals. They said they owned 4.5% in shares and derivatives.While this situation has been on my radar I haven't done much with it. I take a brief look below the fold.

Nam Tai Property Inc (NTP US) has been the stomping ground for a small US-based activist and a few other shareholders since last year with one shareholder IsZo Capital LP there as the top independent shareholder since 2017, and "public" since filing a 13G in February 2019. Nam Tai Property - founded in 1975 - was originally an electronics company based in Shenzhen. It changed its name to Nam Tai Property in 2014. It is listed, somewhat oddly, on the NYSE.In May, IsZo Capital - which at the time owned 9.8% of shares out vs 6.68% at end-December - sent the company a letter which it also released to the public. IsZo was upset that Nam Tai was trading at only about US$4.05 at the time, which was a 70% decline since the share price in January 2018, 28 months earlier, when Kaisa Group Holdings (1638 HK) replaced the CEO with Ying Chi Kwok who was the younger brother of the CEO of Kaisa (and himself owns 13.8% of Kaisa). Kaisa had themselves bought in at just under US$17/share, paying CNY 750mm for 6.5mm shares held by then-lead shareholders Koo Ming Kown and Cho Sui Sin. They bought another 1.1mm shares in the quarter and then another 1.583mm in Q4 2017 to get to the current position of 9.191mm shares. That was 25.01% when they got there but ESOP plans have dropped that to 23.61% now.Before the letter in May, IsZo had been rallying shareholders to its cause, and the register saw significant turnover, presumably towards shareholders friendly to the activist cause. The letter WAS on a website (https://fixntp.com) that IsZo put up but it is no longer there. The letter itself explained issues with Kaisa's history and conflicted ownership and called on shareholders to reconstitute the Board and remove Kaisa insiders from leadership roles, proposing a slate. Another fund, Railroad Ranch Capital, wrote a letter in June 2020 supporting IsZo's proposals. They said they owned 4.5% in shares and derivatives.While this situation has been on my radar I haven't done much with it. I take a brief look below the fold. 

Nam Tai Property - An Interesting Activist Situation

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is above 60,000 we are constructive from a price perspective.  China (CSI 300, MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while South Korea (KOSPI) and India (SENSEX) display improving price and RS trends -- add exposure.

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is above 60,000 we are constructive from a price perspective.  China (CSI 300, MSCI China) continues to offer many attractive setups and accounts for the vast majority of today’s recommendations. Taiwan (TAIEX) continues to be worthy of an overweight within the EM universe, while South Korea (KOSPI) and India (SENSEX) display improving price and RS trends -- add exposure.

China

Kaisa Group Holdings Limited is an integrated real estate company. The Group focuses on urban development and operation. Kaisa Group's real estate business covers the planning, development and operation of large-scale residential properties and integrated commercial properties.

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Kaisa Group Holdings (1638 HK)

Asia HY Monthly - China's Three Red Lines - Lucror Analytics

In this month’s “In-Focus” section, we consider China’s new Three Red Lines leverage guidelines for developers, which have been rolled out on a...

Lucror Analytics

Asia HY Trade Book - September 2020 - Lucror Analytics

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

Lucror Analytics

Evergrande May Be Facing a Funding Squeeze

Stori

Travis Lundy

Nam Tai Property - An Interesting Activist Situation

$

Travis Lundy

Remain Overweight EM Relative To EAFE

The MSCI EM index (local currency) remains in an uptrend and is testing all-time highs set in January 2018 near 65,800; as long as the index is...

Vermilion Research

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