Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On Friday, it became known that S&amp;P Global ratings had lowered the ratings on Evergrande by two full notches, from B- to CCC, which is now four notches above Default. USD bonds issued by Scenery Journey were lowered from CCC+ to CCC-. </p><p>That was the second time in about ten days that S&amp;P had lowered rates (after the agency had lower rates after the Guangfa Bank account freezing episode, later resolved, and the issue in Shaoyang City which had accused Evergrande of not depositing pre-sale funds into the escrow accounts properly). </p><p>According to a Reuters article...</p><blockquote><p data-testid="paragraph-3">"We lowered the ratings because Evergrande's liquidity position is eroding more quickly and by more than we previously expected," the rating agency said.</p></blockquote><div><div><div><div><blockquote><div id="reuters_desktop_native_1">It added the firm's nonpayment risk is escalating not only for the substantial public bond maturities in 2022, but also for its bank and trust loans and other debt liabilities over the next 12 months.</div></blockquote></div></div></div></div><p>This move followed Fitch and Moody's which had both dinged the ratings at end June and again on 28 July and 2 August, respectively. </p><p>To possibly make it worse on the ratings agency front, as of Friday after the close, China's financial regulators are also on the case, trying to root out weakness in "construction of ratings methods and systems" (which could be taken to mean corruption). The PBOC (announcement <a href="http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4311502/index.html" target="_blank" rel="noopener">link</a> in Chinese), in conjunction with the NDRC, the Ministry of Finance, the CBRC, and the CSRC, jointly issued the <em>"Notice on Promoting the Healthy Development of the Bond Market Credit Rating Industry"</em></p><p>On Friday, Caixin Media <a href="https://www.caixinglobal.com/2021-08-06/exclusive-one-court-will-handle-developer-evergrandes-multitude-of-debt-lawsuits-101751875.html" target="_blank" rel="noopener">reported</a> that the Supreme People's Court - the top court in China - had directed that all cases involving debts owed by Evergrande and its related parties be transferred to the Guangzhou Intermediate People's Court. According to Caixin... </p><blockquote><p>A court insider said this kind of decision — known as “centralized jurisdiction” — is usually made when a company is involved in a large number of lawsuits across regions and the situation has the potential to cause a significant social impact.</p></blockquote><p>The article notes that other companies which have been subject to <em>centralized jurisdiction</em> include Peking University Founder Group, HNA Group - which have been put through bankruptcy and/or restructuring - and China Fortune Land Development which <a href="https://www.caixinglobal.com/2021-02-02/developer-china-fortune-defaults-on-53-billion-yuan-in-debt-101659497.html" target="_blank" rel="noopener">defaulted</a> on repayment of debt in February, and <a href="https://www.caixinglobal.com/2021-03-10/developer-china-fortune-defaults-on-another-13-billion-in-debt-101673624.html" target="_blank" rel="noopener">again</a> in March. </p><p>Vice Premier Liu He apparently apparently pointed out in a State Council meeting the week before last that Evergrande's problems are one of "liquidity stress" rather than an "insolvency" situation. I'd note that a MinNews <a href="https://min.news/en/economy/aff8aa102018d13ea3af930f62859bdb.html" target="_blank" rel="noopener">article</a> quoting a REDD report says HNA Group, China Fortune Land Development, and China Minsheng Investment were also assessed as having liquidity stress and "non-insolvent debt"</p><p>Banks have been asked to curb lending and in May were asked to stress-test their Evergrande exposure. Evergrande affiliate Shengjing Bank was fined in May for illegally financing real estate projects.</p><p>It would appear that Evergrande has decreasing room for manoeuvre. And that room for manoeuvre depends on others' confidence in stability of outcome. </p>

On Friday, it became known that S&amp;P Global ratings had lowered the ratings on Evergrande by two full notches, from B- to CCC, which is now four notches above Default. USD bonds issued by Scenery Journey were lowered from CCC+ to CCC-. That was the second time in about ten days that S&amp;P had lowered rates (after the agency had lower rates after the Guangfa Bank account freezing episode, later resolved, and the issue in Shaoyang City which had accused Evergrande of not depositing pre-sale funds into the escrow accounts properly). According to a Reuters article..."We lowered the ratings because Evergrande's liquidity position is eroding more quickly and by more than we previously expected," the rating agency said.It added the firm's nonpayment risk is escalating not only for the substantial public bond maturities in 2022, but also for its bank and trust loans and other debt liabilities over the next 12 months.This move followed Fitch and Moody's which had both dinged the ratings at end June and again on 28 July and 2 August, respectively. To possibly make it worse on the ratings agency front, as of Friday after the close, China's financial regulators are also on the case, trying to root out weakness in "construction of ratings methods and systems" (which could be taken to mean corruption). The PBOC (announcement link in Chinese), in conjunction with the NDRC, the Ministry of Finance, the CBRC, and the CSRC, jointly issued the "Notice on Promoting the Healthy Development of the Bond Market Credit Rating Industry"On Friday, Caixin Media reported that the Supreme People's Court - the top court in China - had directed that all cases involving debts owed by Evergrande and its related parties be transferred to the Guangzhou Intermediate People's Court. According to Caixin... A court insider said this kind of decision — known as “centralized jurisdiction” — is usually made when a company is involved in a large number of lawsuits across regions and the situation has the potential to cause a significant social impact.The article notes that other companies which have been subject to centralized jurisdiction include Peking University Founder Group, HNA Group - which have been put through bankruptcy and/or restructuring - and China Fortune Land Development which defaulted on repayment of debt in February, and again in March. Vice Premier Liu He apparently apparently pointed out in a State Council meeting the week before last that Evergrande's problems are one of "liquidity stress" rather than an "insolvency" situation. I'd note that a MinNews article quoting a REDD report says HNA Group, China Fortune Land Development, and China Minsheng Investment were also assessed as having liquidity stress and "non-insolvent debt"Banks have been asked to curb lending and in May were asked to stress-test their Evergrande exposure. Evergrande affiliate Shengjing Bank was fined in May for illegally financing real estate projects.It would appear that Evergrande has decreasing room for manoeuvre. And that room for manoeuvre depends on others' confidence in stability of outcome. 

Evergrande's Room for Manoeuvre - A Question of Confidence

David Blennerhassett

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<p>This week in StubWorld ...</p>
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<p>A bubble warning on <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Auto (708 HK)</a> from state-media suggests <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>, at a 77% discount to NAV, is a better bet.</p>
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<p>Preceding my comments on Evergrande are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<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>
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This week in StubWorld ...




A bubble warning on Evergrande Auto (708 HK) from state-media suggests Evergrande Real Estate Group (3333 HK), at a 77% discount to NAV, is a better bet.




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%.


StubWorld: Evergrande Auto's Bubble Trouble

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

<p>The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 13 November. The constituent changes will be effective after the close of trading on 4 December.</p><p>For the Hang Seng TECH Index, there are 2 inclusions and 2 exclusions.</p><p>The inclusions are <a href="https://www.smartkarma.com/entities/ming-yuan-cloud-group" target="_blank" data-smartkarma-citation="entities:29268:1" rel="noopener">Ming Yuan Cloud Group (909 HK)</a> and <a href="https://www.smartkarma.com/entities/archosaur-games" target="_blank" data-smartkarma-citation="entities:28948:1" rel="noopener">Archosaur Games (9990 HK)</a>, while the deletions are <a href="https://www.smartkarma.com/entities/hengten-networks-group-ltd" target="_blank" data-smartkarma-citation="entities:3296:1" rel="noopener">HengTen Ltd (136 HK)</a> and <a href="https://www.smartkarma.com/entities/netdragon-websoft-inc" target="_blank" data-smartkarma-citation="entities:3703:1" rel="noopener">Netdragon Websoft (777 HK)</a>.</p><p> One way turnover is 7.97% due to the inclusions/ exclusions, capping, and free float changes.</p><p>Both inclusions have 0.67 days of ADV to buy, <a href="https://www.smartkarma.com/entities/hengten-networks-group-ltd" target="_blank" data-smartkarma-citation="entities:3296:1" rel="noopener">HengTen Ltd (136 HK)</a> has 0.6 days of ADV to sell, while <a href="https://www.smartkarma.com/entities/netdragon-websoft-inc" target="_blank" data-smartkarma-citation="entities:3703:1" rel="noopener">Netdragon Websoft (777 HK)</a> has 1 day of ADV to sell.</p>

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 13 November. The constituent changes will be effective after the close of trading on 4 December.For the Hang Seng TECH Index, there are 2 inclusions and 2 exclusions.The inclusions are Ming Yuan Cloud Group (909 HK) and Archosaur Games (9990 HK), while the deletions are HengTen Ltd (136 HK) and Netdragon Websoft (777 HK). One way turnover is 7.97% due to the inclusions/ exclusions, capping, and free float changes.Both inclusions have 0.67 days of ADV to buy, HengTen Ltd (136 HK) has 0.6 days of ADV to sell, while Netdragon Websoft (777 HK) has 1 day of ADV to sell.

Hang Seng TECH Index Rebalance: Two Changes as Assets Continue to Grow

<p>On 20 July, the Hang Seng Indexes Company announced that they would be launching the Hang Seng TECH Index on 27 July. The next day the index jumped 7.2%, helped in no small part by the news of <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial (1051260D CH)</a>'s impending listing. </p><div>
<p>The Hang Seng TECH index (HSTECH) is a free float adjusted market cap weighted index that tracks the 30 largest technology stocks listed in Hong Kong and covers companies that have high business exposure to selected technology themes, including internet, fintech, cloud, e-commerce and digital activities. Eligible candidates are further screened by whether they operate via a technology-enabled platform, their research and development expenses to revenue ratio, and their revenue growth.</p>
<p>We wondered when ETFs tracking the index would be launched. We did not have to wait too long. On 28 August, CSOP launched the first ETF (3033 HK) linked to the HSTECH index. The fund raised around HKD 180m in seed money prior to listing. The first day of trading saw 382.16m shares (HKD 3.045bn of notional) trade, making it the highest traded volume for an ETF on launch day since the Tracker Fund (2800 HK) in 1999. It was also sixth most traded listing for the day on the HKEX behind <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan Dianping (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>. </p>
<p>There are two more ETFs tracking the HSTECH index that will be launched shortly: Hang Seng TECH Index ETF (3032 HK) and ChinaAMC Hang Seng TECH Index ETF (3088 HK).</p>
<p>In this Insight, we take a look at the index, the index methodology, the impact on the stocks, and what the Fast Entry of large listings could mean for smaller names in the index.</p>
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On 20 July, the Hang Seng Indexes Company announced that they would be launching the Hang Seng TECH Index on 27 July. The next day the index jumped 7.2%, helped in no small part by the news of Ant Financial (1051260D CH)'s impending listing. 
The Hang Seng TECH index (HSTECH) is a free float adjusted market cap weighted index that tracks the 30 largest technology stocks listed in Hong Kong and covers companies that have high business exposure to selected technology themes, including internet, fintech, cloud, e-commerce and digital activities. Eligible candidates are further screened by whether they operate via a technology-enabled platform, their research and development expenses to revenue ratio, and their revenue growth.
We wondered when ETFs tracking the index would be launched. We did not have to wait too long. On 28 August, CSOP launched the first ETF (3033 HK) linked to the HSTECH index. The fund raised around HKD 180m in seed money prior to listing. The first day of trading saw 382.16m shares (HKD 3.045bn of notional) trade, making it the highest traded volume for an ETF on launch day since the Tracker Fund (2800 HK) in 1999. It was also sixth most traded listing for the day on the HKEX behind Xiaomi Corp (1810 HK), Tencent Holdings (700 HK), Alibaba Group (9988 HK), Meituan Dianping (3690 HK) and AIA Group Ltd (1299 HK). 
There are two more ETFs tracking the HSTECH index that will be launched shortly: Hang Seng TECH Index ETF (3032 HK) and ChinaAMC Hang Seng TECH Index ETF (3088 HK).
In this Insight, we take a look at the index, the index methodology, the impact on the stocks, and what the Fast Entry of large listings could mean for smaller names in the index.


Hang Seng TECH Index - 'NASDAQ of the East' ETFs Are Here

<p>On the 30 July, <a href="https://www.smartkarma.com/entities/evergrande-health-industry-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Health Industry (708 HK)</a>'s (EHI) market cap surpassed the market cap of its parent (&amp; controlling shareholder) <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">China Evergrande Group (3333 HK)</a> (CEG). That 74.99% stake in ERI currently accounts for 77% of CEG's market cap.</p>
<p><strong>EHI</strong>'s entry into the new energy vehicle industry in 2019 is fuelling the share price gain, and currently trades at a nosebleed 51.8x trailing revenue, having gained 272% in the last six months.</p>
<p>But not all is beer and skittles. Short interest (in terms of shares) has increased seven-fold in the last five weeks. And the SFC just completed an inquiry into the shareholding of the company and <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0819/2020081900676.pdf" target="_blank" rel="noopener">concluded</a> there is a high concentration of shareholders.</p>
<p>Stripping out CEG's stake and 19.83% held by 18 shareholders (not named), remaining shareholders in EHI hold just 5.18% of shares out. This has all the hallmarks of bubble trouble.</p>
<p>As always, more below the fold.</p>

On the 30 July, Evergrande Health Industry (708 HK)'s (EHI) market cap surpassed the market cap of its parent (&amp; controlling shareholder) China Evergrande Group (3333 HK) (CEG). That 74.99% stake in ERI currently accounts for 77% of CEG's market cap.
EHI's entry into the new energy vehicle industry in 2019 is fuelling the share price gain, and currently trades at a nosebleed 51.8x trailing revenue, having gained 272% in the last six months.
But not all is beer and skittles. Short interest (in terms of shares) has increased seven-fold in the last five weeks. And the SFC just completed an inquiry into the shareholding of the company and concluded there is a high concentration of shareholders.
Stripping out CEG's stake and 19.83% held by 18 shareholders (not named), remaining shareholders in EHI hold just 5.18% of shares out. This has all the hallmarks of bubble trouble.
As always, more below the fold.

China Evergrande (3333 HK): Set-Up Vs. Electrified Health

China

China Ruyi Holdings Limited operates as a holding company. The Company, through its subsidiaries, focuses on online streaming video and internet community businesses. China Ruyi Holdings also manufactures and sells photographic, electronic, and multimedia accessories.

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China Ruyi Holdings (136 HK)

Evergrande's Room for Manoeuvre - A Question of Confidence

Evergrande bad news again chips away at the bonds. Late last week saw the 2nd downgrade by S&P in 10 days, and a "centralisation of jurisdiction"...

Travis Lundy

StubWorld: Evergrande Auto's Bubble Trouble

CEA's hare price appears unsustainable. Xinhua's commentary is stating the obvious. CEG is a set-up here versus CEA. CEG is tightly held. It would...

David Blennerhassett

Hang Seng TECH Index Rebalance: Two Changes as Assets Continue to Grow

The first review of the Hang Seng TECH index has 2 inclusions and 2 deletions. Assets benchmarked to the index are north of US$1.1bn and will...

Brian Freitas

Hang Seng TECH Index - 'NASDAQ of the East' ETFs Are Here

On 20 July, the Hang Seng Indexes Company announced that they would be launching the Hang Seng TECH Index on 27 July. The next day the index jumped...

Brian Freitas

China Evergrande (3333 HK): Set-Up Vs. Electrified Health

On the 30 July, Evergrande Health Industry (708 HK)'s (EHI) market cap surpassed the market cap of its parent (& controlling shareholder) China...

David Blennerhassett

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