Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

There is nothing illegal about the sale of assets when a company is insolvent, or potentially insolvent. But any such sale must be at market value. Which is probably where negotiations between <a href="https://www.smartkarma.com/entities/hopson-development-holdings" target="_blank" data-smartkarma-citation="entities:8108:1" rel="noopener">Hopson Development (754 HK)</a> and <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a> came undone.
As discussed exhaustively both here at Smartkarma and in the media, Hopson is reportedly in talks to acquire a 51% stake in <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a> from Evergrande. 
It was unclear whether the headline value of HK$40bn was for the 51% stake, or the valuation of the company as a whole. If for the whole company, that would have implied a 27.7% discount to last close, which might have upset Evergrande shareholders and bondholders alike. If it were HK$40bn for a 51% stake, that would be a considerably different outcome. Media reports noting the suspension of talks pointed at a HK$20bn number for the 51% stake. 
<a href="https://www.reuters.com/article/china-evergrande-debt-hopson-dev-hold/key-evergrande-deal-to-sell-stake-in-unit-put-on-hold-sources-idUSL4N2RF2DG" target="_blank" rel="noopener">Reportedly</a>, the Guangdong provincial government, which is effectively wearing a pre-administrator hat concerning Evergrande’s restructuring, has not approved the sale. 
In hindsight, this might be a good thing for Hopson. If Evergrande were to enter receivership/liquidation, and the receiver/liquidator deemed the stake sale in Evergrande Property Services was at a reduced value, it may make an application to the courts to unwind the transaction.
The other side of the coin, is why would Hopson potentially expose themselves to an unwind, or questionable business practice by acquiring assets on the cheap from a technically bankrupt or near-bankru entity? If a sale was reversed, does Hopson become a creditor and if so, is it subordinated to other creditors?
The 23 October marks the 30-day grace period on Evergrande's first missed payment before a default is officially declared. Evergrande also missed a second payment on September 29, and by media accounts, has been less than engaged with debtors on potential asset sales despite numerous requests.
And if Evergrande defaults, where does that leave Evergrande Property Services, whose business is almost exclusively reliant on the property services with its parent? And 65%-held <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>, which has yet to manufacture an electric vehicle? And even 34.5%-held <a href="https://www.smartkarma.com/entities/shengjing-bank-co-ltd-h" target="_blank" data-smartkarma-citation="entities:96:1" rel="noopener">Shengjing Bank Co Ltd H (2066 HK)</a>?

There is nothing illegal about the sale of assets when a company is insolvent, or potentially insolvent. But any such sale must be at market value. Which is probably where negotiations between Hopson Development (754 HK) and Evergrande (3333 HK) came undone.
As discussed exhaustively both here at Smartkarma and in the media, Hopson is reportedly in talks to acquire a 51% stake in Evergrande Property Services (6666 HK) from Evergrande. 
It was unclear whether the headline value of HK$40bn was for the 51% stake, or the valuation of the company as a whole. If for the whole company, that would have implied a 27.7% discount to last close, which might have upset Evergrande shareholders and bondholders alike. If it were HK$40bn for a 51% stake, that would be a considerably different outcome. Media reports noting the suspension of talks pointed at a HK$20bn number for the 51% stake. 
Reportedly, the Guangdong provincial government, which is effectively wearing a pre-administrator hat concerning Evergrande’s restructuring, has not approved the sale. 
In hindsight, this might be a good thing for Hopson. If Evergrande were to enter receivership/liquidation, and the receiver/liquidator deemed the stake sale in Evergrande Property Services was at a reduced value, it may make an application to the courts to unwind the transaction.
The other side of the coin, is why would Hopson potentially expose themselves to an unwind, or questionable business practice by acquiring assets on the cheap from a technically bankrupt or near-bankru entity? If a sale was reversed, does Hopson become a creditor and if so, is it subordinated to other creditors?
The 23 October marks the 30-day grace period on Evergrande's first missed payment before a default is officially declared. Evergrande also missed a second payment on September 29, and by media accounts, has been less than engaged with debtors on potential asset sales despite numerous requests.
And if Evergrande defaults, where does that leave Evergrande Property Services, whose business is almost exclusively reliant on the property services with its parent? And 65%-held Evergrande Auto (708 HK), which has yet to manufacture an electric vehicle? And even 34.5%-held Shengjing Bank Co Ltd H (2066 HK)? 

Evergrande (3333 HK): Probably Hopson's Best Outcome

Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

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

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-7613'>China Aoyuan Property</a></li><li><a href='#lucror-entity-8108'>Hopson Development</a></li><li><a href='#lucror-entity-14896'>Jingrui Holdings</a></li><li><a href='#lucror-entity-4153'>Shui On Land</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.China Aoyuan PropertyHopson DevelopmentJingrui HoldingsShui On Land

Morning Views Asia: China Aoyuan Property, Hopson Development, Jingrui Holdings, Shui On Land

Evergrande Property Services Group / Event-Driven

Evergrande Property Services Group (6666 HK)

The plight of <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a>, the "world's most indebted property developer" has been exhaustively covered and picked apart both here at Smartkarma and in the media. (Although I highly recommend <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a>'s Bloomberg <a href="https://www.bloomberg.com/news/articles/2021-09-20/understanding-evergrande-the-chinese-real-estate-conglomerate-that-s-nearing-collapse?sref=frV97TwV" target="_blank" rel="noopener">podcast</a> for his bird's eye synopsis).
Concerns for the embattled real estate play are leading to formerly friendly and close shareholders exiting at massive losses, such as recently suspended <a href="https://www.smartkarma.com/entities/chinese-estates-holdings-limited" target="_blank" data-smartkarma-citation="entities:20954:1" rel="noopener">Chinese Estates Holdings (127 HK)</a> (as discussed in <a href="https://skr.ma/1HQM2" target="_blank" rel="noopener">Chinese Estates (127 HK): Potential Privatisation?</a>); and spreading to smaller investors such as <a href="https://www.smartkarma.com/entities/blue-river-holdings-ltd" target="_blank" data-smartkarma-citation="entities:20130:1" rel="noopener">Blue River Holdings (498 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/1004/2021100403346.pdf" target="_blank" rel="noopener">dumping</a> <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 Vehicle (708 HK)</a> (reportedly missed its last payroll payment) at a material loss - Blue River also sold stakes in Evergrande and <a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Property Services (6666 HK)</a> (EPS). <a href="https://www.smartkarma.com/entities/china-strategic-hldgs-ltd" target="_blank" data-smartkarma-citation="entities:20588:1" rel="noopener">China Strategic Hldgs (235 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0921/2021092101057.pdf" target="_blank" rel="noopener">announced</a> on the 21 September it proposes to sell its 1.37% stake in Evergrande Vehicle. 
Evergrande has also been selling off assets, most recently a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0929/2021092900039.pdf" target="_blank" rel="noopener">19.93% stake</a> in <a href="https://www.smartkarma.com/entities/shengjing-bank-co-ltd-h" target="_blank" data-smartkarma-citation="entities:96:1" rel="noopener">Shengjing Bank Co Ltd H (2066 HK)</a> for ~RMB10bn. 
Now we have Evergrande <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/1004/2021100400771.pdf" target="_blank" rel="noopener">suspended</a> due to a material transaction; EPS due to a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/1004/2021100400799.pdf" target="_blank" rel="noopener">possible general Offer</a>; and the intriguing part, <a href="https://www.smartkarma.com/entities/hopson-development-holdings" target="_blank" data-smartkarma-citation="entities:8108:1" rel="noopener">Hopson Development (754 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/1004/2021100400101.pdf" target="_blank" rel="noopener">suspended</a> due the acquisition of a company "and the relevant possible mandatory offer to acquire the shares of the" company.
China's state-backed Global Times <a href="https://www.globaltimes.cn/page/202110/1235627.shtml" target="_blank" rel="noopener">said</a> Hopson will buy a 51% stake in EPS "and the deal could be valued at more than 40 billion HKD" ($5.1bn). One of those media sources appears to be <a href="https://www.cls.cn/detail/846513" target="_blank" rel="noopener">Cailian Press</a>, which also has SOE affiliation. Jiemian.com, Cailian's sister publication - the two merged in <a href="https://www.chinamoneynetwork.com/2018/02/28/chinese-media-firms-jiemian-cailian-press-merge-creating-financial-information-giant" target="_blank" rel="noopener">February 2018</a> - <a href="https://www.jiemian.com/article/6667341.html" target="_blank" rel="noopener">reckons</a> the fine print on a deal won't be known for a few days.<a href="https://www.jiemian.com/article/6667341.html" target="_blank" rel="noopener"></a>
All three companies remain suspended at the time of writing. Given this transaction could come out any old way, this insight touches on some of the permutations Hopson may take to gain majority control in EPS, if that is the end-game.

The plight of Evergrande (3333 HK), the "world's most indebted property developer" has been exhaustively covered and picked apart both here at Smartkarma and in the media. (Although I highly recommend Travis Lundy's Bloomberg podcast for his bird's eye synopsis).
Concerns for the embattled real estate play are leading to formerly friendly and close shareholders exiting at massive losses, such as recently suspended Chinese Estates Holdings (127 HK) (as discussed in Chinese Estates (127 HK): Potential Privatisation?); and spreading to smaller investors such as Blue River Holdings (498 HK) dumping Evergrande Vehicle (708 HK) (reportedly missed its last payroll payment) at a material loss - Blue River also sold stakes in Evergrande and Evergrande Property Services (6666 HK) (EPS). China Strategic Hldgs (235 HK) announced on the 21 September it proposes to sell its 1.37% stake in Evergrande Vehicle. 
Evergrande has also been selling off assets, most recently a 19.93% stake in Shengjing Bank Co Ltd H (2066 HK) for ~RMB10bn. 
Now we have Evergrande suspended due to a material transaction; EPS due to a possible general Offer; and the intriguing part, Hopson Development (754 HK) suspended due the acquisition of a company "and the relevant possible mandatory offer to acquire the shares of the" company.
China's state-backed Global Times said Hopson will buy a 51% stake in EPS "and the deal could be valued at more than 40 billion HKD" ($5.1bn). One of those media sources appears to be Cailian Press, which also has SOE affiliation. Jiemian.com, Cailian's sister publication - the two merged in February 2018 - reckons the fine print on a deal won't be known for a few days.
All three companies remain suspended at the time of writing. Given this transaction could come out any old way, this insight touches on some of the permutations Hopson may take to gain majority control in EPS, if that is the end-game.

In this month’s "In-Focus" section, we discuss the Indonesian real estate market, including the impact of the COVID-19 pandemic and related lockdowns on the residential, commercial and industrial property markets. We also provide an overview of recent bond defaults. The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the "In-Focus" section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market.

  In this month’s "In-Focus" section, we discuss the Indonesian real estate market, including the impact of the COVID-19 pandemic and related lockdowns on the residential, commercial and industrial property markets. We also provide an overview of recent bond defaults.   The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the "In-Focus" section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market. 

Asia HY Monthly - Indonesian Real Estate Market Update - Lucror Analytics

Hong Kong

Hopson Development Holdings Limited is an investment holding company primarily engaged in the development of residential and commercial properties in China. The company's diverse operations include property development, commercial property investment, property management, and infrastructure business. It was founded in 1992 and is headquartered in Central, Hong Kong.

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Hopson Development (754 HK)

Evergrande (3333 HK): Probably Hopson's Best Outcome

There is nothing illegal about the sale of assets when a company is insolvent. But any such sale must be at market value. This is probably where...

David Blennerhassett

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

Morning Views Asia: China Aoyuan Property, Hopson Development, Jingrui Holdings, Shui On Land

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

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Asia HY Monthly - Indonesian Real Estate Market Update - Lucror Analytics

In this month’s "In-Focus" section, we discuss the Indonesian real estate market, including the impact of the COVID-19 pandemic and related...

Lucror Analytics

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