Get started

China

Bitcoin Will Drop... Alot. But it Will Rise Above the Ashes.Markets are going to keep going down in fear of Chinese real estate powerhouse Evergrande defaulting; Bitcoin will drop alongside it in the short term. My chart shows we may still rebound after we hit the 38k area. With that being said, if the Chinese housing bubble crashes, which represents 28% of China's entire economy, we will enter a global correction. Combine that with current inflation rates (6% on the year), and if this spending bill passes congress, we will enter a long term bearish outlook; which will shred BTC down to the 20K's in the short term as people liquidate assets in fear of them dropping further. That will be the ultimate buy opportunity, as BTC will serve as an inflation hedge long term, and only augments Bitcoin's use case - despite China working overtime to thwart the coin at every new opportunity it seems. The only chance Evergrande has, is if the Chinese government bails it out. But that will only alleviate things for a short time, a band aid. If that happens, and the markets rebound, im looking to liquidate my stock portfolio and hold cash. The whole world is looking at China right now...
COINBASE:BTCUSD
by Tokademics
HUYA (1W) - Midterm Plan Hi Traders, Below is my Idea about this very good loking company .... from CHINA !! Compared to competitors (like Twitch) is discountedm same like DOYU. WHich are both owned by TENCENT as one of biggest investors. After some FUD price from chinese government the price is Dummping. In my Opinion, we are approaching end of impulsive wave DWON. you can also see touch with downtrend line + RSI COnvergence + MACD Convergence. Which are very bullish signs for me. ALso fundamentally, this could be very good investment. But lets see. My plan is to take around 75-100% and sell everythin from actual price around 8.40 USD. Trade safe. Enjoy the ride.
NYSE:HUYALong
by Longevity_Contrarian
3
Gaotu Hints at Vocational Education Shift Due to the recent introduction of the 'double reduction' policy by the state to regulate the country's expensive private education industry, Gaotu is looking to adjust its focus. The Chinese edtech firm Gaotu released its Q2 earnings report for the period ended June 30, 2021, on September 23 2021. - Net revenue was CNY 2.23 billion, a 35.3% year-over-year increase. - Net revenues of online K-12 courses increased 51.0% year-over-year to CNY 2.09 billion. - Gross billings were CNY 2.69 billion, a 12.2% year-over-year increase. - Gross billings of online K-12 courses increased 17.2% year-over-year to CNY 2.57 billion. - Paid course enrollments increased 4.1% year-over-year to 1,631 thousand. - Paid course enrollments of online K-12 increased 4.5% year-over-year to 1,563 thousand. - Net loss was CNY 918.8 million, compared with a net income of CNY 18.6 million in the same period of 2020. - Non-GAAP net loss was CNY 763.9 million, compared with non-GAAP net income of CNY 72.7 million in the same period of 2020. - Deferred revenue was CNY 1.97 billion, compared with CNY 2.73 million as of December 31, 2020. Larry Chen Xiangdong, Founder and CEO of Gaotu, said in the financial report that Gaotu has adjusted its organizational structure, transformed its focus to vocational and STEAM education instead and would further work on digital products and vocational education. Shen Nan, CFO of Gaotu, further expressed that in exploring vocational education, the public service examination has maintained a high level. The number of paying users of financial certificates has increased fourfold year-on-year, Shen said, "In the future, we will focus on areas strongly supported by the government and create a multi-faceted interactive platform covering all education categories to achieve lifelong learning."
NYSE:GOTU
by EqualOcean
17EdTech Hits USD 104 Million in Revenue for Q2 2020The Chinese edtech firm’s K-12 tutoring service contributes 98.7% of its revenue 17EdTech released its Q2 earnings report for the period ended June 30, 2021, on September 23. - Net revenue was CNY 671 million, a 147.2% year-over-year increase. - Net revenues of K-12 tutoring service increased 163.9% year-over-year to CNY 662 million. - Paid courses enrollment reached 1.18 million, a 131.1% year-over-year increase. - A 68.3% increase in operating expense year-over-year consists of CNY 307 million in S&D and CNY 230 million in R&D. - Net loss was CNY 218 million, narrowing down by 73% compared to Q1 2021. - Cash and cash equivalent CNY 2.16 billion, an 23% decrease from last fiscal year. - Monthly average users reached 1.65 million, a 24% decrease year-over-year 17EdTech also announced that Co-founder Mr. Xiao Tong resigned from the board of directors due to personal reasons effective from September 23, 2021. Since the uncertainty in the supervision of the firm and the operation circumstances 17EdTech did not release the performance guideline for the next quarter.
NASDAQ:YQ
by EqualOcean
New Oriental Records USD 4.27 billion Revenue in FY 2021AccordinAccording to the latest regulatory developments, it plans to shut down a certain number of learning centers in the fiscal year 2022. The Chinese edtech giant released the audited performance report for the fiscal year 2021 on September 24 Revenue was USD 4.27 billion, a year-on-year increase of 19.5%. The net profit was USD 230 million, a year-on-year decrease of 35.03%. The net profit attributable to shareholders was USD 334 million. The revenue of New Orientals plans and services in the fiscal year 2021 was USD 3.93 billion, accounting for 92.1% of the total revenue while the revenue of books and other services was recorded as USD 340 million, accounting for 7.9% of the total revenue. The firm's business is mainly divided into seven categories, including K12 after-school counseling, examination preparation courses, adult language training, kindergartens, primary and secondary schools, textbook development and distribution, online education, overseas study consultation, overseas study tour and other services. - New Oriental's revenue from K12 after-school counseling, test preparation and other courses was USD 3.66 billion, accounting for 85.8% of the total revenue, an increase for three consecutive years. Online education revenue was USD 211 million, accounting for 4.92% of the total revenue, with a year-on-year increase of 37.91%. - The revenue of kindergartens, primary and secondary schools, textbook development and distribution, study abroad consultation, overseas study tour and other services was USD 399 million, accounting for 9.33% of the total revenue. - In terms of the number of students, as of the reported period New Oriental has 6.723 million students participating in extracurricular counseling courses for middle school and high school students, and 5.348 million students participating in extracurricular counseling courses for kindergarten and primary school students. There are about 390000 students enrolled in the preparatory courses, including 198000 overseas preparatory courses and 193000 Chinese preparatory courses. About 5000 students enrolled in the adult English course. - In terms of the number of teachers, the financial report shows that as of May 31, 2021, New Oriental has employed 54200 teachers, mainly full-time teachers, followed by contract teachers. In terms of expenses, the total operating costs and expenses of New Oriental during the reporting period were USD 4.159 billion. Among them, the revenue cost was USD 2.037 billion, the sales and marketing expenses were USD 600 million, the general and administrative expenses were USD 1.49 billion, and the impairment loss of intangible assets and goodwill is USD 31.79 million. - In this report, New Oriental believes that the measures taken to comply with the 'double reduction' policy will have a significant adverse impact on the firms' business, financial condition, operating performance and prospects. New Oriental said that it may take further actions on discipline counseling services in the stage of compulsory education in the near future to ensure its legal compliance, including closing some learning centers and layoffs when necessary, so as to maintain continuous operation.
NYSE:EDU
by EqualOcean
Evergrande: A DiscussionConcerns Investors May Have: China is said to contain more of the world's real estate assets than any other country. Therefore one concern is the potential impact a possible default may cause to international property markets. Consumer confidence in real estate investments could reduce and perhaps lower property demand, potentially reducing real estate prices. Should this occur to a great extent, pre-existing property loans could outvalue the revaluation of the real estate asset. This potential major contrast between loans outvaluing the associated properties could collapse some banks internationally. A possible mass sell-off of property globally by investors and banks could burst the property bubble. Another concern is investors could forfeit involvement in companies offering similar services. There ore other confounding factors involving the current pandemic, employment, inflation and among others. Thank you for reading. Please share your thoughts. Do you believe this company could be bailed-out or would other companies in a similar position expect similar treatment? ---- Disclaimer: This does not constitute any form of advice including legal, financial or investment advice and should not be construed or relied on as such. Always seek advice from a qualified and registered legal practitioner or financial or investment adviser. Information presented is for entertainment purposes only.
HKEX:3333
by calculations
Bitcoin: Two Main Scenarios here for the next couple of weeks.Scenario A: Considering BTC is failing to get above the 0.618 fibonacci level located around 43700-43900 this may be a early warning sign that cheaper prices are coming, but there is still hope: In the top image the 0.618 is claimed as support quickly taking us to the next resistance area above, if further resistances were claimed this bearish idea would obviously be invalidated. ------------------------------------------------------------------------------------------------------- Scenario B: In the below image (Scenario B) the 0.618 we fail to claim as support and this adds further panic into the market with the China Banning Bitcoin Transaction news, and Evergrande Debt Crisis leading to a deep market sell off, the most logical area being the 0.382 fibonacci at 38300 or the Previous Strong Support Area at 29200 for Bitcoins next key area of reversal. ------------------------------------------------------------------------------------------------------- Evergrande Debt Crisis: edition.cnn.com China Widens Ban on Crypto Transactions: www.bloomberg.com
FTX:BTCUSD
by Worth_The_Ri5k
14
China Bans Crypto - Fact or FUDHello Traders! We got something interesting for you! Chinese authorities ordered a fresh crackdown on crypto mining and trading Friday, according to a statement posted on the People’s Bank of China site.The statement, signed by China’s top financial and cyberspace regulators, gives a comprehensive list of crypto activities that are forbidden, and orders local governments to crack down on them. China’s State Council issued a statement in May ordering a crackdown on crypto mining and trading. The statement sent dozens of crypto companies abroad.The regulators banned banks and other financial institutions from offering services related to crypto and called for increased censorship of information related to crypto.The regulators also want to establish a mechanism for early warning and stopping “hype” in crypto trading and mining activities. Honestly speaking, the intentions of the Chinese government are not clear to me. However, one thing is for sure - this situation will have an extremely negative impact on the cryptocurrency market and may lead to the start of a bear run. We will keep our finger on the pulse and keep you updated on all the latest news from the world of cryptocurrency. Honestly speaking, the intentions of the Chinese government are not clear to me. However, one thing is for sure - this situation will have an extremely negative impact on the cryptocurrency market and may lead to the start of a bear run. We will keep our finger on the pulse and keep you updated on all the latest news from the world of cryptocurrency. Nevertheless, let’s have a look at the chart. As you can see the price I lying on the Support 1. If it’ll close bellow it, the continuation of fell if very probable. The next level is Support 2. It’s kinda difficult look in future deeper:). If the scenario works, we will update out analysis. But, it seems to me that today’s candle is able to close above the support 1. In this case, it may retrace rapidly. Well guys, I don’t want such news get you into trouble, it’s the big game that’s named «Market». The rules are trivial - there are no rules or the are always be rewritten. Try to make deal even in such tough periods and we’ll help you with it.
by Skyrexio
4
🔥 China Banning Crypto FUD: Why You Shouldn't WorryAs of today, the Chinese central bank has announced that all crypto transactions are deemed illegal. Investors who have been in the crypto space for a while know that once in a while China announces that they are banning crypto (again). This FUD comes in once in a while and often sends the market down, but fails to make a lasting impact on the market. A quick google search has netted me a decent amount of times that China has banned crypto, see the chart. I'm sure that if you dig deeper you'll find many more occasions of China "banning" crypto. Feel free to share them below. What you can deduce from this graph and the corresponding news is that, in the long-term, China banning crypto has had no significant impact on the markets. As for today, it seems that the market is already rallying higher with many coins close to their opening prices of today. Happy trading!
INDEX:BTCUSDLong
by FieryTrading
20
Bitcoin in Freefall Towards the Closest Psychological SupportBitcoin's tumble was bolstered today following the decision of China's central bank to declare all cryptocurrency activities illegal. The price action is currently testing the 23.6 per cent Fibonacci retracement level at 41764.04. A potential pullback could ensue to the 38.2 per cent Fibonacci, which is about to be crossed by the 50-day MA (in green) and the 100-day MA (in blue). Conversely, a decisive breakdown below the 23.6 per cent Fibonacci would likely be followed by a dropdown to the psychologically significant support level at 40000.00.
BITSTAMP:BTCUSDShort
by Trendsharks
1
$BABA for those still interested in Chinese stockwhy? Stay away! Yes it is cheap, yes it looks like capitulation, but why get yourself into the headache? China won't let any business get too big and gain power anyway. Keep that in mind. I keep posting these setups but if I took the trade I got out quickly. Catching a knife is dangerous. But if you're still that guy who is convinced this is the opportunity of a lifetime, this combo 13 might be your trigger. Although I would say at this point, when price is this low, wait for a higher low or higher high to be safe.
NYSE:BABA
by kidze
The Evergrande Crisis ExplainedIn this post, I'll be providing an easy yet comprehensive explanation on the Evergrande crisis, and why it's important for us to understand the situation. Disclaimer: This is not investment advice. This is for educational and entertainment purposes only. I am not responsible for the profits or loss generated from your investments. Trade and invest at your own risk. What is Evergrande? - Evergrande is China’s second largest property developer, founded in 1996. - To understand the size of this company, here are some numbers: - Evergrande is running more than 1300 projects in over 280 cities. - They’ve had success with real estate, so they also expanded horizontally, acquiring an electric vehicle company as well as Guangzhou F.C. - They own a lot of other smaller companies, but their main focus and main business is in the field of real estate. The Problem with Evergrande - The main problem with Evergrande is its liabilities. - The only thing you need to understand is that the company is in a lot of debt - specifically, $310 Billion. - The company is also going through hard times with insolvency issues, and underperformance in terms of revenue. - When the Chinese government put a list of companies that could pose a threat to the market and lead to its collapse, Evergrande was also on the list - It was also recently revealed they begged the government for help in their backdoor listing plan as well. Evergrande's Stock and Bond Prices - Overall, Evergrande's stock fell close to 90% from its all time high levels, and over 80% since the beginning of this year - The company’s dollar bond’s price has also dropped over 70%. - What’s also concerning is how the bonds of Evergrande’s real estate counterparts are also dropping sharply, and signaling a potential crash. Evergrande's Debt - Out of Evergrande’s $310B debt, about $85B comes from bonds and loans from banks. - These are the liabilities for which Evergrande actually pays interest on. - $67B comes from shadow banking systems; money from shady sources. - The rest of the $158B is actually the most important part. This is the amount of accounts payable. - When Evergrande is does business and they’re developing real estate, they need to buy the materials and resources needed. - But when they bought whatever they needed from their suppliers, they didn’t pay in cash. - It all went down as accounts payable, which basically means that they owe the suppliers money. The Anatomy of a Market Crash - Financial institutions and suppliers rely heavily on Evergrande, and a lot of companies could go bankrupt if they’re not paid. - This is essentially a domino effect of the entire Chinese market, with Evergrande at the center of it. - Not only that, we also need to think of Evergrande’s employees. - The company has over 123,000 employees alone, and that doesn’t include the number of construction workers who are hired for each of their projects. China's Real Estate Market Situation - China's real estate market is the biggest in the world - The market also accounts for 10% of China's entire economy. - Taking this into consideration, a complete collapse would cause devastating repercussions to not only the Chinese economy, but also the stability of the CCP, and the global economy as well. Why the Chinese Government is Capable of Bailing Evergrande Out - If we take a look at the numbers, it could also be said that they might get a government bailout. - While their liability amounts to $310B, the interest they actually need to pay imminently, amounts to $669m - This is also still a lot of money, but much more manageable than $310B. - So while Evergrande is having a hard time with insolvency, if the government were to help out just a little bit, they might just be able to get back on their feet. - And with investors gathering up in front of the Evergrande building and the probability of a political risk increasing, $669m might be a small sacrifice for the stability of the regime. China's Indirect Intervention - The Global Times, a media that directly reflects the stance, position, and opinion of the Chinese government, said that Evergrande was "not too big to fail". - But, China’s central bank injected $14B in cash in Sep. 17, and another $15B today through Open Market Operations (OMO). - And since the liquidity they provided was the most they’ve done in the past 8 months, it’s safe to say that they had Evergrande in mind Expert Opinion on the Matter - Michael Burry, founder of Scion Capital LLC, shared a tweet by @INArteCarloDoss, who states some important points. - The 3 redlines, which are the debt related restrictions, began last year. - China has been lifting the real estate market by leveraging a lot of debt, and the government wants to deleverage. - It’s almost certain that Evergrande’s bankruptcy is a matter of time, but the question is how severely other companies and financial institutions will be affected. - Of course the Chinese government will provide liquidity in the market, but won’t directly intervene and solve the problem for Evergrande. - Overall, it could be said that Michael Burry agrees with this thread that says Evergrande’s bankruptcy is inevitable, and that the Chinese government will indirectly intervene, if it does decide to intervene at all. - So a crisis in some form will certainly take place, it’s a matter of the degree to which it takes place. - On the other hand, we have @BaldingsWorld - Christopher Balding is a professor at Peking University - His logic is that we won’t see a financial crisis because we’re applying the logic of the free market to a country’s market that is actually completely under control of its government. - So this professor believes that a bailout for Evergrande is inevitable. How to Prepare for a Potential Crash - Since nothing is set in stone yet, the best we can do as investors is to keep my eyes open and look at how the Chinese government might directly or indirectly solve the issue. - Depending on how the situation deteriorates, increasing one's cash holdings might be prudent in case the US stock market also is affected. - This is especially important as the S&P500 index is currently testing the 60 Simple Moving Average (SMA) on the daily. (chart below) Conclusion Evergrande's debt situation might have greater implications than we can anticipate. Regardless of whether the Chinese government intervenes or not, and whether it does in an indirect or direct manner, there will be repercussions to the Chinese economy. As such, it's important to keep an eye on how the situation may unfold and affect the US stock market as well. If you like this educational post, please make sure to like, and follow for more quality content! If you have any questions or comments, feel free to comment below! :)
HKEX:3333
by Michael_Wang_Official
121
Evergrande and the Cryptocurrency Market Selloff ExplainedIn this post, I'll be providing an explanation on a theory regarding the potential connection between China's giant real estate developer, Evergrande, and Tether. If you aren't familiar with Evergrande and the crisis it's currently going through, make sure to check out my previous post below: Disclaimer: This is not investment advice. This is for educational and entertainment purposes only. I am not responsible for the profits or loss generated from your investments. Trade and invest at your own risk. Evergrande's Shadow Banking Funds - In my previous analysis, I mentioned the existence of Evergrande's $67B liability from shady sources. - People, including renowned investors like Michael Burry, are posing doubts as to whether this liability has connections with Tether, a company that offers stablecoins in the cryptocurrency market. About Tether - Tether offers $USDT, a stablecoin that is convertable for 1 USD. - Essentially, what it does is not so different from what banks used to do, and continue to do today. - During the gold standard, when you took $500 to the bank, they'd give you an ounce of gold. - Tether guarantees that they'll provide 1 USD per 1 USDT - But, some say that Tether is faced with a bank-run like situation, looking at its reserves. - According to their March 2021 Reserves update, commercial paper accounts for 65% of Tether's cash reserves. - For those of you who don't know, commercial paper, or CP, is a way to finance extremely short term loans at a very cheap rate. - Tether did not disclose whose CPs they were, in order to protect their partner's privacy. Tether's Commercial Paper - Back in July this year, Tether’s CTO and general counsel had an interview with CNBC, and made a few important points. - They said that they have about $30B in AA rated International Commercial Paper, and these were rated AA by S&P and Fitch. - The point that some people are making is that Tether’s commercial paper might actually be Evergrande’s commercial paper. - This may seem like a conspiracy theory, but there are certain points that line up. Reason #1 - First, Tether currently has $30B in commercial papers, and that’s an insane amount of money. - Reuters reported that Shengjing Bank, the bank affiliated with Evergrande, is under investigation for providing illegal loans up to $20B. - Considering that even a more renowned company like JP Morgan can’t write $20B loans, there is plausible reason to doubt that the capital may have come from Tether. - So taking into consideration the size of the loan, some say that it’s highly likely that the capital flowed into Chinese real estate companies. Reason #2 - Secondly, even after Bitcoin peaked in mid April, Tether continued to print more USDT. To be precise, they printed $15B between mid April and early June. - In case you don’t know what bitcoin has to do with this, there have been claims that Tether has been arbitrarily printing USDT. - This USDT would be used to manipulate the price of Bitcoin, and the overall cryptocurrency market in general. - While Tether has been printing money like crazy, and as soon as Evergrande CPs defaulted on June 7, they stopped printing USDT. - Now this is a chicken or egg question where we don’t know if Evergrande’s liquidity problem caused Tether’s collateral to impair, or whether Tether’s cutoff caused the liquidity issues at Evergrande, but something sure smells fishy. How the Market Structure Would Break - Tether claims that they don’t hold any Evergrande commercial papers, but we don’t know anything for sure yet. - If it turns out that Tether was lying, and we see a domino effect take place, it would look something like this: - Evergrande, along with other real estate developers in China, would go default. - Tether, who lent them money in the form of commercial paper, could also go default. - And with tether going default we would see the cryptocurrency market take a huge hit. Where is Bitcoin Headed? - So at this point, you may be wondering: where would Bitcoin be headed with this absolute mayhem of a situation? - While Bitcoin and the overall crypto market crashed, we did manage to close above $40.7k on the daily. - This would indicate that the overall uptrend remains intact, despite the awful news. Conclusion So many answers still remain unanswered. Where does Tether put its billions? Who issues $30B in AA International Commercial paper, willing to pay anything? Why did Tether stop printing money as soon as Evergrande’s liquidity died? As I've said in the previous post, the best thing we can do as investors is to prepare for all probable situations. In my personal opinion, the Chinese government seems willing to indirectly solve the issue by injecting capital via open market operations, so it's more likely that this situation will be settled at one point, as opposed to leading to the entire global financial market collapsing. If you like this educational post, please make sure to like, and follow for more quality content! If you have any questions or comments, feel free to comment below! :)
HKEX:3333
by Michael_Wang_Official
17
KWEB LONG: DOUBLE DIAMOND + CHANNEL BOTTOM + OSCILLATORS1. Price has drawn 2 diamonds (diamond in diamond) at the bottom of the increasing (purple) channel. Buy signal. 2. A cycle with a length of 756 days (25 months) is found, according to which the price is now at the bottom of the cycle. Buy signal. 3. All major oscillators and indicators are in oversold zones and give long signals. 4. It is necessary to remember about the resistance of the local downtrend (orange). * At the same time, the fundamental background in China is still negative. I entered a long position with a trailing stop loss below the lower edge of the small diamond. After breaking through and/or retesting the upper edge of a large diamond, and then after breaking through the orange resistance, I will buy more. In case the price falls, my trailing sell order will save me. Not advice. Not a financial recommendation.
AMEX:KWEBLong
by Dr_Chester
5
WTF is Happening with Evergrande ???‼️💥Excerpt from Petition:" Source from Petition LLC "Shenzhen-based The Evergrande Group ($EGRNF) is China’s second largest property developer by sales and the 122nd largest developer in the world by revenue according to the 2021 Fortune Global 500 List.* While its core business is buying land and developing it into residential real estate, it is really an investment holding company that, in addition to property development, dabbles (or dabbled, as the case may be) in hotel operations, finance, internet businesses (for real estate and automobile sales), professional sports, theme parks, mineral water and health industry businesses. This sucker has had its tentacles in a lot of pots over the years, leveraging billionaire founder Xu Jiayin’s charisma and close contacts to the government to chase whatever the “it” thing of the moment was in Chinese spheres (i.e., electric cars).** It also happens to be levered to the tits. It also happens to be generally indebted to the tits. It also happens to be delinquent AF on a lot of those debts and deeply in trouble. And it is very much at the mercy of the Chinese government which, as of about a year ago, has been on a very public crusade to tamp down on over-leveraged private companies (implemented via “three red lines”*** meant to forestall a systemic crisis). Evergrande may very well be the poster child of the very type of company the Chinese government had in mind. Pundits are dubbing Evergrande’s emergent financial crisis China’s “Lehman” and the markets are flustered (the Dow closed down over 600 points after taking a 900+ point tumble yesterday afternoon after The Hang Seng got napalmed in afternoon trading with real estate giants like Henderson Land Development Co. ($HLDCY) getting hammered). Part II. The Extent of the Problem. Evergrande is a behemoth; it owes a smorgasbord of creditors including (i) banks, (ii) contractors doing the work, (iii) foreign bondholders, (iv) local investors (who often times also double as employees), and (v) homebuyers who paid in advance for (reportedly 1.6mm) new properties that Evergrande is apparently struggling to complete. At this point the question really ought to be ‘who doesn’t this company owe money to?’ The company has raised billions in debt from foreign investors (some of which trades as low as 20-30 cents on the dollar now) in addition to funds raised from over 80k retail investors to fund its construction projects across greater China. $7.4b in bond payments are due in 2022 alone and that’s after the company deals with $669mm in coupon payments through the end of ‘21 (including $615mm of that on the company’s dollar bonds). With amounts that staggering, the last thing creditors need to hear is some sort of inkling that the company may not be able to make near-term interest payments and otherwise appear creditworthy or, alternatively, that the Chinese government won’t bail the company out because it wants to teach over-levered corporates a lesson in financial responsibility. Indeed, interest payments due this week on certain of the company’s bank loans are not going to be made. This obviously calls into question whether the company will satisfy coupon payments of $83.5mm on September 23 and $45.17mm on September 29 on certain of its dollar-denominated notes. Given all of this, unsurprisingly, the company’s Hong Kong-traded shares have nosedived 90% in the past year and continued the rapid descent on Sunday going into Monday. Which only stands to reason. Last week Fitch — always late to the party — declared that default “appears probable” and Moody’s indicated that both cash and time are on short supply for Evergrande. S&P Global Ratings piled on (per Bankruptcy Data): The liquidity and funding access of China Evergrande Group are shrinking severely, as demonstrated by an announced material drop in sales, a fall in the cash balance and the continued use of physical properties to settle payments, according to S&P Global Ratings. The Company is negotiating repayment terms and two of its subsidiaries have failed to meet guarantee obligations on wealth management products to retail investors. The ratings agency believes the Company may not be able to service debt in time, which will lead to a default scenario including the possibility of debt restructuring. Therefore, on September 15, 2021, S&P Global downgraded Evergrande and its subsidiaries Hengda Real Estate Group Co. Ltd. and Tianji Holding Ltd. to CC from CCC and its long-term issue rating on the U.S. dollar notes issued by Evergrande and guaranteed by Tianji to C from CCC-. Such worsening parameters, coupled with the appointment of financial advisors to evaluate the Company's liquidity and explore solutions to ease the situation, imply that Evergrande's default scenario, which could include debt restructuring, is a virtual certainty, the ratings agency states. AllianceBernstein is saying Evergrande is in crisis, the effects of which might spillover into wider parts of the Chinese economy, creating a systemic problem. The markets on Monday appeared to buy into this thinking, relying on Evergrande to spark a long overdue market correction. All of this has a lot of people understandably afraid and extremely pissed off. III. Who Might Get F*cked? A. Depositors. Among them Evergrande’s customers. It’s hard to say exactly but it looks like Evergrande is pretty darn close to a straight-up Ponzi scheme. They collect pre-sale deposits for apartments and then use those deposits to accelerate construction on other homes that they then put up for sale and rinse, wash and repeat. This works, we suppose, when there’s demand. Lately demand has come crashing down in China thanks in large part to the government’s effort to wean the economy off of the corrupt real estate teat, significantly weakening a primary revenue stream. And potentially weakening the Chinese middle class. As indicated by those insane GDP figures above, real estate in China is like religion. Lots of those depositors hanging in the wind are people who put down deposits thinking their new apartments constituted a sound investment. As this writer notes: “All over China, salesclerks and factory workers are sitting on empty Evergrande apartments and dreaming of selling them at a big mark-up to fund their children’s study abroad or their own retirement.” 😬😬😬😬 B. Employees Apparently it’s pretty common in China for owners and employees of highly levered Chinese companies to buy “wealth management products” from said companies to help finance them when they’re in dire need. Indeed, Evergrande reportedly tapped into approximately 70 to 80 percent of its workforce back in April for large sums of money, threatening to withhold bonuses of employees who declined to provide Evergrande short-term loans. What happened next is unconscionable. Per the NYT: Some workers tapped their friends and family for money to lend to the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans, which had been packaged as high-interest investments. Now, hundreds of employees have joined panicked home buyers in demanding their money back from Evergrande, gathering outside the company’s offices across China to protest last week. Whoops. Of course, each of these creditors should, in a fair world, be treated similarly but, of course, you have the extra bonus here of a bunch (six, actually) of scumbag senior Evergrande executives who, seeing the writing on the wall, secured redemptions of their investments. They got busted, however, and the company indicated that the funds would be returned and that those executives would be on the receiving end of some good ol’ fashioned Chinese retribution. Thoughts and prayers to those fools. C. Bondholders. A different kind of punishment may extend far and wide. If Evergrande fails, reverberations will be extensive. Per the NYT: Panic from investors and home buyers could spill over into the property market and hit prices, affecting household wealth and confidence. It could also shake global financial markets and make it harder for other Chinese companies to continue to finance their businesses with foreign investment. Writing in The Financial Times last week, the billionaire investor George Soros warned that an Evergrande default could cause China’s economy to crash. Soros wrote: Xi Jinping, China’s leader, has collided with economic reality. His crackdown on private enterprise has been a significant drag on the economy. The most vulnerable sector is real estate, particularly housing. China has enjoyed an extended property boom over the past two decades, but that is now coming to an end. Evergrande, the largest real estate company, is over-indebted and in danger of default. This could cause a crash. The signals are there. Chinese high yield is getting crushed. Construction operators are getting annihilated across the board. And the stress is spreading to banks and financials. Even some Chinese investment grade issuance is beginning to look shaky. Which is precisely why Ed Yardeni thinks that, ultimately, the Chinese government will be resigned to step in. There are signs that Beijing regulators are playing some ball: they’ve agreed to permit Evergrande to renegotiate payment deadlines with banks and other creditors in an attempt to sort through this hot mess. Some banks are accommodating. Per Bloomberg: China Minsheng Banking Corp., China Zheshang Bank Co. and Shanghai Pudong Development Bank Co. had agreed to give Evergrande extensions on some project loans. Citic Trust, one of the developer’s biggest non-bank lenders, has given preliminary approval to a three-month extension on loans that were due in August, a person familiar with the matter said. And there are additional signs that the government is growing concerned: late last week it infused $14b of short-term cash into its banking system. But what if, beyond this small level of initial latitude, the Chinese government doesn’t intervene? Bondholders are reportedly scrambling to hedge their positions but failing to do so; they’re apparently beginning to realize that this whole situation may turn into the Hunger Games. Also per Bloomberg: Investors in China Evergrande Group’s bonds are struggling to find a hedge to cushion their losses as the troubled real estate giant nears what could be one of China’s biggest debt restructurings. Banks’ trading desks are reluctant to offer hedging tools after some of them suffered losses earlier in the year, and due to the sparse trading of Evergrande’s CDS, according to people familiar with the matter who were not authorized to speak publicly about the matter. Owners of Evergrande’s $19 billion in dollar bonds are currently watching their investment shrivel as they wait to find out if Beijing will step in to halt its downward spiral. For money managers used to relying on the $10 trillion swaps market to hedge downside risks, it’s an extraordinary situation. Also per Bloomberg: China Evergrande Group may undergo one of the country’s biggest-ever debt restructurings, if the developer’s distressed-level bond prices are any indication. It’s “almost unavoidable,” said Nomura International Hong Kong Ltd. credit analyst Iris Chen. Her base case is a government-supervised deal that ensures Evergrande delivers homes and pays suppliers, where dollar debt investors would get 25% of their money back. Luther Chai, a senior research analyst at CreditSights Singapore LLC, also predicts Evergrande may default and enter restructuring. That risk is being priced in, with many of Evergrande’s dollar bonds trading near 30 cents. Others are casting a similarly pessimistic outlook: Evergrande restructures its debt and bondholders recover a portion of their funds. This would be an “orderly wind down,” says Omotunde Lawal, head of Barings LLC’s emerging-market corporate debt group. There may be some contagion across China’s property issuers at first, according to Nomura’s Chen, though sentiment would improve as a key overhang would be removed. She expects only a 5% recovery rate for investors in Evergrande unit Scenery Journey Ltd. Annnnd others are evaluating the doomsday scenario: Liquidation is a scenario where bondholders may get close to nothing. This is unlikely, says CreditSights’s Chai, because it would “wreak havoc across China’s property and banking sectors, as well as related companies such as Evergrande’s suppliers.” Morgan Stanley analysts say “all parties are incentivized to avoid a liquidation scenario” in the restructuring of any Chinese property developer. Chairman Hui Ka Yan, who controls more than 70% of Evergrande’s equity -- would lose a significant portion of his wealth. Another negative scenario would involve Evergrande bringing some of its off-balance sheet debt -- which may include pledged assets -- back into the books, according to Nomura’s Chen. These assets could have priority over the dollar bonds in a recovery and if the off-balance sheet debt is higher than expected, bondholders could get less than 15% of their money back. And still others are trying to be sanguine: A complete or partial takeover by a state-owned enterprise is another possibility, though Nomura’s Chen assigns a low probability to this scenario. Evergrande could also sell its listed assets at better prices if market conditions improve, says Chen, which she predicts would give bondholders a recovery rate of 30% or more. Evergrande could buy some time to improve its liquidity over the next year, according to Chai at CreditSights. In this scenario, Evergrande would repay some of its nearest-term dollar bonds upon maturity. The developer has two sizeable dollar bonds due over the next 12 months, or a combined $3.5 billion to pay. Whatever. Any which way you slice it… That’s right. The company’s most active dollar-denominated bonds — the 8.75% notes due in June 2025 — have freefalled from 84 cents at the end of May to 31 cents late last week. Similarly, the shortest-maturity bonds — due in March ‘22 — are down to 35 cents on the dollar from 99.6 cents at the end of May. The company has hired restructuring advisors: Houlihan Lokey Inc. ($HLI) and Admiralty Harbour Capital. In turn, certain bondholders have reportedly hired Kirkland & Ellis LLP and Moelis & Co. ($MC). No doubt other firms will be getting calls. Per Bloomberg: With 13 outstanding dollar bonds, including one note touted as one of the most widely traded in the world, and a diverse group of bondholders globally, getting organized is going to be tricky. Especially as funds trade in and out of the paper. Per Bloomberg: Saba Capital Management, Redwood Capital Management, Contrarian Capital Management and Silver Point Capital are among funds that have built positions in offshore bonds of China Evergrande Group’s ahead of a likely default of the real estate giant. The four investors are among the credit funds that took a position in Evergrande’s $19 billion dollar-denominated notes in recent weeks, as prices fell to about 25% of face value amid uncertainties over the future of China’s second largest developer, according to people with knowledge of the matter who asked not to be identified because the transactions are private. You know the old saying: one company’s crisis is a lot of vulture funds’ opportunity. Anyway, there very well may be quite a bit of asymmetric upside when you’re buying in at 25 cents on the dollar but Johnny seems to remember a time when buyside shops were VERY skittish about political risk enveloping foreign credits. But what’s a little political risk when you’ve got money to deploy and not many other distressed opportunities to play in? YOLO b*tches! 🤷‍♀️ D. Commodities Take a look at prices for steel and copper on TradingView , among other things, and it’s ugly AF. There was the largest drop in steel output ever in August. Take a look at these charts: E. The Chinese Consumer & American Companies Catering Thereto Evergrande directly and indirectly contributes approximately 3.8mm jobs. It’s employees and suppliers are now potential victims of Evergrande’s predicament. As the government cracks down on various industries and Evergrande wavers, the consumer is getting a bit flustered. Retail sales recently dropped 11% off trend and all indicators reflect sluggish consumer confidence. This could end up affecting large US companies with China dependency. Maybe this is the reason why Apple Inc. ($AAPL) is 10% off its recently set ATH — a reason that doesn’t entirely have to do with an underwhelming product launch or misunderstood injunction. It’s unclear. The state will likely extract enough flesh to make sure Chinese bank loans are safe. Contractors likely have security by way of mechanic’s liens and the like. But then there are the bondholders, investors and employees. Things could get ugly for them. In the meantime, Evergrande will likely flood the market with existing property assets, and look to engage in a tremendous amount of liability management across double-digit debt issuances. It could explore selling more equity (LOL…ain’t gonna happen — especially after recent equity issuances have tanked). Or declare bankruptcy. Or…OR…get a bail out. It’s all exasperating. What’s odd is that this has all been out there for over a year. From Fortune: “It’s a confus world when equity markets are generally within a couple percent or so of their record highs whilst we’re seeing the biggest dollar-Asian-high-yield company, Evergrande, with $300 billion of liabilities, on the brink, with no-one really aware of how the work-out will be managed and whether be contagion,” writes Jim Reid, Head of Global Fundamental Credit Strategy at Deutsche Bank, this morning in a markets note. Perhaps everyone was distracted by a deadly pandemic. This is a situation that we — along with the rest of the market — will be watching very closely. F. Postscript Is there a crypto component to all of this? This thread ⬇️ suggests there very well may be. This is something we’ll also be keeping an eye out for. Points to Ponder😬🤔 *In 2018, Evergrande’s stock price made the company the world’s most valuable real estate company. **Notably, as part of it a deleveraging sparked by a Chinese government crackdown on over leverage, the company has been divesting of non-core businesses of late. Mr. Jiayin recently stepped down as chairman of the property group; he was, before all of this transpired, roughly the 53rd richest person in the world. ***The three red lines include: (i) Liability-to-asset ratio (excluding advance receipts) of less than 70%, (ii) Net gearing ratio of less than 100%, and (iii) Cash-to-short-term debt ratio of more than 1x. If the developers fail to meet one, two, or all of the ‘three red lines’, regulators would then place limits on the extent to which they can grow debt. ****And there’s a lot of questions as to whether this is even the right number given JV partnerships that Evergrande is part of that may carry debt off balance sheet. 📚Resources📚 We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥. We’ve recently updated the list to include some new releases such as “Damsel in Distressed: My Life in the Golden Age of Hedge Funds” by Dominique Mielle (formerly of Canyon Partners) and “The Platform Delusion: Who Wins and Who Loses in the Age of Tech Titans” by Jonathan Knee. We haven’t read either yet but they both certainly look interesting.
OTC:EGRNFLong
by wallstreetsharks
2