Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

Here we summarize frequently asked questions (FAQs) we were asked by the press this month on China Evergrande Group ( <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a> ) and recent credit events for Evergrande and other Chinese property developers.
If our last Evergrande report ( <a href="https://www.smartkarma.com/insights/china-evergrande-group-never-grand" target="_blank" data-smartkarma-citation="insights:58256" rel="noopener">China Evergrande Group:  Never Grand</a> , dated 29-Sep) is about the rationale of Evergrande’s default and the lessons learned from the event. This flash note is about the continued saga where we do not see the end in sight just yet. We maintain our opinion that Evergrande is too big for the Chinese government to ignore and even though the trigger of the saga is the Three Red Lines<a href="#_ftn1" target="_blank" rel="noopener">[1]</a>, the cause is Evergrande’s leverage itself.
The bottom line for us is that the credit crisis of Chinese property developers will be contained as we believe China’s political system empowers the regulators with heavy hands which will force collaborations among issuers, investors, and intermediaries. Oftentimes, these participants are either owned or influenced by the central or local government entities.
Evergrande missed the coupon payments on 23-Sep (for its EVERRE 3/22s) and 29-Sep (for its EVERRE 3/24s) but eventually serviced its payments within the 30-day grace period. The company also secured more than 3 months of a maturity extension of its already defaulted USD260m bonds issued by Jumbo Fortune Enterprises, Evergrande’s joint venture, The bonds, guaranteed by Evergrande, matured on 3-Oct and defaulted as there is no provision for a grace period.
We believe it is difficult to gauge Evergrande’s recovery rate and, at the price between mid 20s to 30 cents on the dollar, the EVERRE complex’s fair value is unknown. As such our UNDERWEIGHT recommendation on the complex remains unchanged.
 
 
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<div id="ftn1">
<a href="#_ftnref1" target="_blank" rel="noopener">[1]</a>The Three Red Lines include the following: 
(1) A net gearing ratio of less than 100%; 
(2) Cash to short-term debt ratio of more than 1x; and 
(3) A total liability to total asset ratio (excluding advance receipts) of less than 70%.
 
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Here we summarize frequently asked questions (FAQs) we were asked by the press this month on China Evergrande Group ( Evergrande (3333 HK) ) and recent credit events for Evergrande and other Chinese property developers.
If our last Evergrande report ( China Evergrande Group:  Never Grand , dated 29-Sep) is about the rationale of Evergrande’s default and the lessons learned from the event. This flash note is about the continued saga where we do not see the end in sight just yet. We maintain our opinion that Evergrande is too big for the Chinese government to ignore and even though the trigger of the saga is the Three Red Lines[1], the cause is Evergrande’s leverage itself.
The bottom line for us is that the credit crisis of Chinese property developers will be contained as we believe China’s political system empowers the regulators with heavy hands which will force collaborations among issuers, investors, and intermediaries. Oftentimes, these participants are either owned or influenced by the central or local government entities.
Evergrande missed the coupon payments on 23-Sep (for its EVERRE 3/22s) and 29-Sep (for its EVERRE 3/24s) but eventually serviced its payments within the 30-day grace period. The company also secured more than 3 months of a maturity extension of its already defaulted USD260m bonds issued by Jumbo Fortune Enterprises, Evergrande’s joint venture, The bonds, guaranteed by Evergrande, matured on 3-Oct and defaulted as there is no provision for a grace period.
We believe it is difficult to gauge Evergrande’s recovery rate and, at the price between mid 20s to 30 cents on the dollar, the EVERRE complex’s fair value is unknown. As such our UNDERWEIGHT recommendation on the complex remains unchanged.
 
 



[1]The Three Red Lines include the following: 
(1) A net gearing ratio of less than 100%; 
(2) Cash to short-term debt ratio of more than 1x; and 
(3) A total liability to total asset ratio (excluding advance receipts) of less than 70%.
 



China Evergrande Group:   Trick Without Treat

Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

Some developers have reportedly proposed to extend their offshore bond maturities or conduct debt restructuring at the NDRC and SAFE meeting earlier this week.Eight developers were summoned to the meeting, according to local media reports. The attendees include a mixture of overlevered and stable developers in terms of offshore debt risks, such as <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd" target="_blank" data-smartkarma-citation="entities:26076:1" rel="noopener">China Vanke (000002 CH)</a> , <a href="https://www.smartkarma.com/entities/shimao-property-holdings-limited" target="_blank" data-smartkarma-citation="entities:8375:1" rel="noopener">Shimao Property Holdings (813 HK)</a> , <a href="https://www.smartkarma.com/entities/sino-ocean-land-holdings" target="_blank" data-smartkarma-citation="entities:8898:1" rel="noopener">Sino Ocean Land (3377 HK)</a> , <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> ,  <a href="https://www.smartkarma.com/entities/central-china-real-estate-ltd" target="_blank" data-smartkarma-citation="entities:513:1" rel="noopener">Central China Real Estate (832 HK)</a> , and <a href="https://www.smartkarma.com/entities/oceanwide-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:14048:1" rel="noopener">Oceanwide Holdings (000046 CH)</a>
We have seen a shift in the property policy stance from comprehensive tightening to finetuning policy.

Some developers have reportedly proposed to extend their offshore bond maturities or conduct debt restructuring at the NDRC and SAFE meeting earlier this week.Eight developers were summoned to the meeting, according to local media reports. The attendees include a mixture of overlevered and stable developers in terms of offshore debt risks, such as China Vanke (000002 CH) , Shimao Property Holdings (813 HK) , Sino Ocean Land (3377 HK) , Kaisa Group Holdings (1638 HK) ,  Central China Real Estate (832 HK) , and Oceanwide Holdings (000046 CH)
We have seen a shift in the property policy stance from comprehensive tightening to finetuning policy.

Developers Said to Propose Offshore Bond Extension to Regulators

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

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.

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-479'>Evergrande</a></li><li><a href='#lucror-entity-6159'>China SCE</a></li><li><a href='#lucror-entity-28672'>Powerlong Commercial Management Holdings</a></li><li><a href='#lucror-entity-27245'>Redsun Properties Group Ltd</a></li><li><a href='#lucror-entity-21047'>Ronshine China Holdings</a></li><li><a href='#lucror-entity-240'>Sunac China Holdings</a></li><li><a href='#lucror-entity-3474'>Yuzhou Group</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.EvergrandeChina SCEPowerlong Commercial Management HoldingsRedsun Properties Group LtdRonshine China HoldingsSunac China HoldingsYuzhou Group

Morning Views Asia: Evergrande, China SCE, Powerlong Commercial Management Holdings

The Asia HY Trade Book for the month of October 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 October 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 - October 2021 - Lucror Analytics

Hong Kong

Shimao Property Holdings Limited develops real estate projects in China.

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Shimao Property Holdings (813 HK)

China Evergrande Group: Trick Without Treat

Evergrande's Saga continues and EVERRE 22s rebounded 8 points. We believe the end is not in sights and see the bottom fishing as a gamble.

Bondcritic

Developers Said to Propose Offshore Bond Extension to Regulators

Some developers have reportedly proposed to extend their offshore bond maturities or conduct debt restructuring at the NDRC and SAFE meeting...

Li Tang

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

Morning Views Asia: Evergrande, China SCE, Powerlong Commercial Management Holdings

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

Lucror Analytics

Asia HY Trade Book - October 2021 - Lucror Analytics

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

Lucror Analytics

Price Gauge

52-week Range

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