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Bond Market Data and Technology

Credit

Dollar bonds of China Evergrande rebounded up to 3 points as the regulator, China’s Financial Stability and Development Committee signed off on its proposal to renegotiate payment deadlines with banks and other creditors. The move is a temporary reprieve to the indebted developer that has been facing financial troubles in recent months.

Evergrande’s Bonds Rebound as Loan Extensions Agreed Upon

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: SOHO China, Evergrande, Kerry Logistics, Milton, CBA, NTT

Travis Lundy

<p>Evergrande is manifesting itself now in a state not dissimilar to a famous Cat from the thought experiment devised by Erwin Schrödinger in 1935 in his discussion with Albert Einstein regarding the Einstein, Podolsky, Rosen ("EPR") article (designed to show that quantum mechanics theory was incomplete) earlier that year. </p>
<p>What the now-famous Mr Schrödinger intended as a modest proposal of sorts (he had no desire to see live and dead cats discussed as a theory) has become a mainstay of popular understanding of quantum mechanics. </p>
<p>The basic idea was a refutation of the then-dominant <a href="https://plato.stanford.edu/entries/qm-copenhagen/" target="_blank" rel="noopener">Copenhagen Interpretation</a> (the name applied to a group of ideas discussed and promoted by Neils Bohr, Werner Heisenberg, Arnold Sommerfeld, and others). Schrödinger's idea was that one could create a quantum superposition (i.e. Evergrande alive, and Evergrande dead) making the outcome dependent on a quantum particle which was in a superposition (i.e. banks are simultaneously being told not to lend, and to lend). Schrödinger's point about the cat was to show that it was kind of ridiculous having the cat be both alive and dead at the same time, but the analogy stuck. </p>
<p>Backing up a bit, one problem discovered early in the process of studying quantum mechanics was that one could not simultaneously observe and measure an electron and determine its momentum (so as to be able to catch it later and re-measure). The problem is known as the Measurement Problem. Some of the math around understanding the concept is in that related to the Heisenberg Uncertainty Principle which provides the math about accuracy and certainty. This was part of Bohr's universe of knowledge in the late 1920s and at the time, Bohr's thought was that the cause of some of the uncertainty of future electron momentum was the impact of the measurement apparatus. After the EPR paper, Bohr decided that the states of the apparatus and that which was being measured could not be separated, and instead were a single dynamic of inseparable form. </p>
<p>It is important to note that the Uncertainty Principle is not the same as the Observer Effect which suggests that measurement of certain systems cannot be made without affecting the system. Heisenberg and later Bohr used the OE as a physical reason why quantum uncertainty existed. </p>
<div class="content-highlight">
<p><em><strong>How is this related to Evergrande? </strong></em></p>
<p>Well, any analyst looking to discuss Evergrande and Schrödinger's Cat, even if doing so using Hugh Everett's "Many Worlds" Interpretation is going to put the rest of it below the fold. </p>
</div>
<p>But first some news...</p>
<h3>The NEW News</h3>
<p>On 9 August, I wrote the latest in my series on <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> in <a href="https://www.smartkarma.com/insights/evergrande-s-room-for-manoeuvre-a-question-of-confidence" target="_blank" rel="noopener">Evergrande's Room for Manoeuvre - A Question of Confidence</a>. This had followed discussion of financing difficulties and buybacks, ratings cuts, etc in <a href="https://www.smartkarma.com/insights/evergrande-s-very-special-special-dividend" target="_blank" rel="noopener">Evergrande's Very Special... Special Dividend?</a> and others. </p>
<p>There is ongoing news/suggestion of Evergrande negotiating the sale of its 55 urban renewal projects in Shenzhen, where local media suggest that potential buyers include a couple of subsidiaries of Shenzhen's SASAC (including Shenzhen Investment Holdings Ltd). This process, perhaps worth RMB 120bn as some media suggests, has been ongoing for months but more news is coming out.</p>
<p>Since Monday, we have had headlines about <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> selling all or part of its stakes in <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" rel="noopener">Evergrande Auto (708 HK)</a> (which itself <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0809/2021080901359.pdf" target="_blank" rel="noopener">came out with a profit warning</a> on 9 Aug) and <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" rel="noopener">Evergrande Property Services (6666 HK)</a> under pressure from Beijing, with one local HK <a href="https://inews.hket.com/article/3029626/%E3%80%90%E6%81%92%E5%A4%A73333%E3%80%91%E5%82%B3%E8%90%AC%E7%A7%91%E3%80%81%E7%A2%A7%E6%A1%82%E5%9C%92%E8%88%87%E6%81%92%E5%A4%A7%E7%89%A9%E6%A5%AD%E5%9B%A0%E5%83%B9%E6%A0%BC%E5%95%8F%E9%A1%8C%E6%9C%AA%E6%9C%89%E5%85%B1%E8%AD%98%E3%80%80%E5%B7%B2%E9%80%80%E5%87%BA%E6%94%B6%E8%B3%BC%E3%80%80%E6%81%92%E5%A4%A7%E7%89%A9%E6%A5%AD%E8%B7%8C%E9%80%BE7-%EF%BC%88%E7%AC%AC%E4%BA%8C%E7%89%88%EF%BC%89" target="_blank" rel="noopener">report</a> suggesting the entire services business could go to Vanke. Caixin suggested there were negotiations between Evergrande and others, including Vanke, CoGard, Shenzhen Metro, China Jinmao, and others, with Vanke reportedly leading the combined efforts. Shares and USD bonds of Evergrande popped. Also the units popped in price, with Evergrande Property Services rising 60% from Monday's lows to Wednesday's highs, and Evergrande Auto rising 40% from low to high. </p>
<p>It is possible that the rises in both were caused by significant short-covering. The shorts in the shares (314mm as of 30 July according to SFC data) are not quite 25% of the Real World Float. The CNY bonds - <a href="http://www.szse.cn/disclosure/listed/bulletinDetail/index.html?a45f8727-1d71-43ed-af73-7bb11aeb8033" target="_blank" rel="noopener">restricted to QIB-equivalents since Monday</a> - continued to fall. </p>
<p>Reuters additionally <a href="https://www.reuters.com/world/china/debt-laden-evergrande-says-sale-talks-certain-assets-shares-jump-2021-08-11/" target="_blank" rel="noopener">reported</a> that according to corporate search engine Tianyancha, Evergrande had pledged its holdings in Xinjiang Guanghui Industry Investment and Evergrande Life Insurance to Shengjing Bank at the end of July (and I remind readers that bank regulators have effectively instructed the local govt to <em>Do Something</em> about the fact that Evergrande owns a large stake in and may quasi-control <a href="https://www.smartkarma.com/entities/shengjing-bank-co-ltd-h" target="_blank" rel="noopener">Shengjing Bank Co Ltd H (2066 HK)</a>, and a large portion of its loans are to Evergrande (noting also that Shengjing was fined in the past couple of months for lending too much to real estate projects)).  </p>
<p>Late Wednesday REDD reported (and Bloomberg followed up) that Beijing had ordered the local Guangzhou government to coordinate with creditors and strategic investors (and speed things up to avoid systemic risk). There was also mention that Evergrande's debt "<em>should be resolved via a "market-oriented" approach.</em>" </p>
<p>Out Thursday early it was said that three banks had agreed to extend the maturity of loans out to Evergrande. China Minsheng Banking, China Zheshang Banking, and Shanghai Pudong Development Bank had apparently agreed to the extensions. Specifically, Zheshang apparently agreed to push repayment to year end for two loans due in July and August (i.e. one of them was already expected to have been repaid (and wasn't?)) according to a Bloomberg <a href="https://www.bloomberg.com/news/articles/2021-08-12/evergrande-gets-loan-extensions-from-several-major-creditors" target="_blank" rel="noopener">article</a>. </p>
<p>Thursday afternoon, state media China National Radio, work had been halted on two projects in Kunming, one of them with overdue payments of RMB 210 million (China Yicai <a href="https://www.yicaiglobal.com/news/evergrande-stock-drops-further-as-yunnan-housing-projects-are-halted-over-unpaid-dues" target="_blank" rel="noopener">article</a>).</p>
<p>Late Thursday, it was reported that Vanke and Country Garden had removed themselves from negotiations on Evergrande Property Services because of differences on price. Personally, I think Evergrande Auto (708) may be unsellable. </p>
<p>A WSJ <a href="https://www.wsj.com/articles/evergrandes-enormous-bill-finally-comes-due-11628761706?mod=djemheard_t" target="_blank" rel="noopener">commentary</a> by columnist Jacky Wong noted there are ever more stories about trade payables not getting paid, and counterparts refusing to take commercial acceptance bills. </p>
<p>And very late Thursday there were <a href="https://www.straitstimes.com/business/companies-markets/china-halts-approvals-for-new-residential-real-estate-funds" target="_blank" rel="noopener">articles</a> that China had halted private equity firms from raising money to invest in residential property developments. The govt-endorsed Asset Management Association of China (AMAC) apparently told private equity firms that it would not accept new registrations for funds to invest in projects, and would reject the applications already in. Existing funds would not be affected. While not a direct hit to Evergrande, what it means is this particular avenue for being able to sell down project assets is no longer a possibility.</p>
<p><em>Discussion of how to read between the lines of the news, and Evergrande's existence as a quantum mechanical phenomenon continues below the fold.</em></p>

Evergrande is manifesting itself now in a state not dissimilar to a famous Cat from the thought experiment devised by Erwin Schrödinger in 1935 in his discussion with Albert Einstein regarding the Einstein, Podolsky, Rosen ("EPR") article (designed to show that quantum mechanics theory was incomplete) earlier that year. 
What the now-famous Mr Schrödinger intended as a modest proposal of sorts (he had no desire to see live and dead cats discussed as a theory) has become a mainstay of popular understanding of quantum mechanics. 
The basic idea was a refutation of the then-dominant Copenhagen Interpretation (the name applied to a group of ideas discussed and promoted by Neils Bohr, Werner Heisenberg, Arnold Sommerfeld, and others). Schrödinger's idea was that one could create a quantum superposition (i.e. Evergrande alive, and Evergrande dead) making the outcome dependent on a quantum particle which was in a superposition (i.e. banks are simultaneously being told not to lend, and to lend). Schrödinger's point about the cat was to show that it was kind of ridiculous having the cat be both alive and dead at the same time, but the analogy stuck. 
Backing up a bit, one problem discovered early in the process of studying quantum mechanics was that one could not simultaneously observe and measure an electron and determine its momentum (so as to be able to catch it later and re-measure). The problem is known as the Measurement Problem. Some of the math around understanding the concept is in that related to the Heisenberg Uncertainty Principle which provides the math about accuracy and certainty. This was part of Bohr's universe of knowledge in the late 1920s and at the time, Bohr's thought was that the cause of some of the uncertainty of future electron momentum was the impact of the measurement apparatus. After the EPR paper, Bohr decided that the states of the apparatus and that which was being measured could not be separated, and instead were a single dynamic of inseparable form. 
It is important to note that the Uncertainty Principle is not the same as the Observer Effect which suggests that measurement of certain systems cannot be made without affecting the system. Heisenberg and later Bohr used the OE as a physical reason why quantum uncertainty existed. 

How is this related to Evergrande? 
Well, any analyst looking to discuss Evergrande and Schrödinger's Cat, even if doing so using Hugh Everett's "Many Worlds" Interpretation is going to put the rest of it below the fold. 

But first some news...
The NEW News
On 9 August, I wrote the latest in my series on Evergrande Real Estate Group (3333 HK) in Evergrande's Room for Manoeuvre - A Question of Confidence. This had followed discussion of financing difficulties and buybacks, ratings cuts, etc in Evergrande's Very Special... Special Dividend? and others. 
There is ongoing news/suggestion of Evergrande negotiating the sale of its 55 urban renewal projects in Shenzhen, where local media suggest that potential buyers include a couple of subsidiaries of Shenzhen's SASAC (including Shenzhen Investment Holdings Ltd). This process, perhaps worth RMB 120bn as some media suggests, has been ongoing for months but more news is coming out.
Since Monday, we have had headlines about Evergrande Real Estate Group (3333 HK) selling all or part of its stakes in Evergrande Auto (708 HK) (which itself came out with a profit warning on 9 Aug) and Evergrande Property Services (6666 HK) under pressure from Beijing, with one local HK report suggesting the entire services business could go to Vanke. Caixin suggested there were negotiations between Evergrande and others, including Vanke, CoGard, Shenzhen Metro, China Jinmao, and others, with Vanke reportedly leading the combined efforts. Shares and USD bonds of Evergrande popped. Also the units popped in price, with Evergrande Property Services rising 60% from Monday's lows to Wednesday's highs, and Evergrande Auto rising 40% from low to high. 
It is possible that the rises in both were caused by significant short-covering. The shorts in the shares (314mm as of 30 July according to SFC data) are not quite 25% of the Real World Float. The CNY bonds - restricted to QIB-equivalents since Monday - continued to fall. 
Reuters additionally reported that according to corporate search engine Tianyancha, Evergrande had pledged its holdings in Xinjiang Guanghui Industry Investment and Evergrande Life Insurance to Shengjing Bank at the end of July (and I remind readers that bank regulators have effectively instructed the local govt to Do Something about the fact that Evergrande owns a large stake in and may quasi-control Shengjing Bank Co Ltd H (2066 HK), and a large portion of its loans are to Evergrande (noting also that Shengjing was fined in the past couple of months for lending too much to real estate projects)).  
Late Wednesday REDD reported (and Bloomberg followed up) that Beijing had ordered the local Guangzhou government to coordinate with creditors and strategic investors (and speed things up to avoid systemic risk). There was also mention that Evergrande's debt "should be resolved via a "market-oriented" approach." 
Out Thursday early it was said that three banks had agreed to extend the maturity of loans out to Evergrande. China Minsheng Banking, China Zheshang Banking, and Shanghai Pudong Development Bank had apparently agreed to the extensions. Specifically, Zheshang apparently agreed to push repayment to year end for two loans due in July and August (i.e. one of them was already expected to have been repaid (and wasn't?)) according to a Bloomberg article. 
Thursday afternoon, state media China National Radio, work had been halted on two projects in Kunming, one of them with overdue payments of RMB 210 million (China Yicai article).
Late Thursday, it was reported that Vanke and Country Garden had removed themselves from negotiations on Evergrande Property Services because of differences on price. Personally, I think Evergrande Auto (708) may be unsellable. 
A WSJ commentary by columnist Jacky Wong noted there are ever more stories about trade payables not getting paid, and counterparts refusing to take commercial acceptance bills. 
And very late Thursday there were articles that China had halted private equity firms from raising money to invest in residential property developments. The govt-endorsed Asset Management Association of China (AMAC) apparently told private equity firms that it would not accept new registrations for funds to invest in projects, and would reject the applications already in. Existing funds would not be affected. While not a direct hit to Evergrande, what it means is this particular avenue for being able to sell down project assets is no longer a possibility.
Discussion of how to read between the lines of the news, and Evergrande's existence as a quantum mechanical phenomenon continues below the fold.

Evergrande as a Study of Quantum Mechanics Theory

<div>
<p>In StubWorld this week ...</p>
</div>
<div>
<div>
<div class="content-highlight">
<p><a href="https://www.smartkarma.com/entities/indofood-sukses-makmur-tbk-p" target="_blank" data-smartkarma-citation="entities:1053:1" rel="noopener"></a>Beleaguered <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>'s shares bounced after the company <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0810/2021081001009.pdf" target="_blank" rel="noopener">said</a> it is in talks to sell stakes in two of its units. But optimism over improved capital management appears naive. </p>
</div>
</div>
</div>
<div>
<p>Preceding my comments on Evergrande are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
</div>
<div>
<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
</div>
<div>
<p>As always, more below the fold.</p>
</div>


In StubWorld this week ...




Beleaguered Evergrande Real Estate Group (3333 HK)'s shares bounced after the company said it is in talks to sell stakes in two of its units. But optimism over improved capital management appears naive. 




Preceding my comments on Evergrande are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


As always, more below the fold.


China Evergrande New Energy Vehicle / Credit

China Evergrande New Energy Vehicle (708 HK)

Demand for dollar bonds from China and the Asia ex-Japan region slowed to its lowest in two years with Bloomberg noting that the woes on China Evergrande and the regulatory crackdowns dampening appetite. Bid-to-cover (Term of the Day, explained below ) stood at 4x for Chinese dollar bonds and 3.8x for the Asia ex-Japan region in July vs. 7.3x and 5.2x in June. Bloomberg notes, “Last month’s dollar-bond subscription ratios in both China and across Asia were the lowest since August 2019, falling below the weakened demand seen during March 2020’s pandemic-fueled global market tumult.” Despite this backdrop, first-time borrowers in China saw 12 new deals in July as compared to a monthly average of eight this year, being able to secure demand for their bonds.

China and Asia ex-Japan Dollar Bond Demand Slows to Two Year Lows in July

China

China Evergrande New Energy Vehicle Group Ltd. is primarily engaged in the research, development, production, and sales of new energy vehicles, including lithium batteries and automotive components. Its main vehicle brand is Hengchi, with the Hengchi 5 being its first mass-produced model. The company's registered office is in Hong Kong, and its new energy vehicle business was founded in 2019.

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China Evergrande New Energy Vehicle (708 HK)

Evergrande’s Bonds Rebound as Loan Extensions Agreed Upon

Dollar bonds of China Evergrande rebounded up to 3 points as the regulator, China’s Financial Stability and Development Committee signed off on its...

BondEvalue

Last Week in Event SPACE: SOHO China, Evergrande, Kerry Logistics, Milton, CBA, NTT

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Evergrande as a Study of Quantum Mechanics Theory

Evergrande is a case study in the applicability of quantum mechanical theory to limit cases of corporate existence. What we see is not the cat. We...

Travis Lundy

StubWorld: What To Do With Evergrande?

Evergrande Auto is not worth what its market cap suggests to an independent third party; and Property Services may or may not be worth what people...

David Blennerhassett

China and Asia ex-Japan Dollar Bond Demand Slows to Two Year Lows in July

Demand for dollar bonds from China and the Asia ex-Japan region slowed to its lowest in two years with Bloomberg noting that the woes on China...

BondEvalue

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)