1/7
Very interesting piece by @Birdyword on some of the ways property developers like Evergrande manage debt, partly by replacing debt-like instruments that are classified as debt with debt-like instruments that are not technically classified as debt.
wsj.com/articles/everg…
Very interesting piece by @Birdyword on some of the ways property developers like Evergrande manage debt, partly by replacing debt-like instruments that are classified as debt with debt-like instruments that are not technically classified as debt.
wsj.com/articles/everg…
2/7
We've seen similar things many times before, for example when local governments replaced their direct borrowings, which showed up as local government debt, with borrowing through SPVs, which didn't. Anyone very familiar with the history of these borrowing frenzies knows...
We've seen similar things many times before, for example when local governments replaced their direct borrowings, which showed up as local government debt, with borrowing through SPVs, which didn't. Anyone very familiar with the history of these borrowing frenzies knows...
3/7
that in the late bubble stages not only do we usually get financial "innovation" that allows borrowers to reclassify or disguise what is still fundamentally debt (remember the Greek loan disguised as a currency swap?), but worse, these structures often highly...
that in the late bubble stages not only do we usually get financial "innovation" that allows borrowers to reclassify or disguise what is still fundamentally debt (remember the Greek loan disguised as a currency swap?), but worse, these structures often highly...
4/7
inverted – i.e. their contractual costs decline when conditions are good but rise substantially at the worst possible time.
The article describes one such financing. Evergrande sold $2 billion of pre-IPO shares to support its deleveraging, but if things go badly for...
inverted – i.e. their contractual costs decline when conditions are good but rise substantially at the worst possible time.
The article describes one such financing. Evergrande sold $2 billion of pre-IPO shares to support its deleveraging, but if things go badly for...
5/7
whatever reason and there is no IPO in the next 12 months, investors have the right to put the shares back at a 15% premium. At the worst possible time, in other words, probably when Evergrande faces the most pressure on its debt, this "equity" might be converted into...
whatever reason and there is no IPO in the next 12 months, investors have the right to put the shares back at a 15% premium. At the worst possible time, in other words, probably when Evergrande faces the most pressure on its debt, this "equity" might be converted into...
6/7
very expensive additional debt. These structures – where the issuer is both short volatility and long delta in order to lower borrowing costs – are extraordinarily risky because they double down on the bet by having the balance sheet reinforce external shocks.
very expensive additional debt. These structures – where the issuer is both short volatility and long delta in order to lower borrowing costs – are extraordinarily risky because they double down on the bet by having the balance sheet reinforce external shocks.
7/7
Chinese borrowers, for example, issue a disproportionate share of the world's putable bonds, as well as other structures discussed in this piece by S&P that effectively allow the issuer to double down.
spratings.com/documents/2018…
Chinese borrowers, for example, issue a disproportionate share of the world's putable bonds, as well as other structures discussed in this piece by S&P that effectively allow the issuer to double down.
spratings.com/documents/2018…
• • •
Missing some Tweet in this thread? You can try to
force a refresh
