Evergrande FUD: What the China property market really looks like, what the CCP does and how it impacts #crypto. Let's deal with facts.
1st we look at the sector and how leverage compares among the top 30 stocks. #Evergrande isn't even at the top
1st we look at the sector and how leverage compares among the top 30 stocks. #Evergrande isn't even at the top
There are ~30 *major* China property companies. Guangzhou R&F has the most leverage. Actually, of the China government's 3 "red lines", G R&F is the worst off.
These are the CCP's policies. Evergrande can *still* increase debt by +5%
These are the CCP's policies. Evergrande can *still* increase debt by +5%
How did Evergrande get into this position? Due to my former life as a equities PM, I've been investing in China property for 13 years.
Evergrande diversified into non-core businesses, like healthcare, water, sports, tech. They've had the among the higest debt for *many* years.
Evergrande diversified into non-core businesses, like healthcare, water, sports, tech. They've had the among the higest debt for *many* years.
Why is it being singled out by the media now?
Because while Guangzhou R&F, Greentown have higher debt, Evergrande's margins and profits are worst.
Because while Guangzhou R&F, Greentown have higher debt, Evergrande's margins and profits are worst.
Also profits have fallen off the cliff at -$1.2bn losses 1H'21. (vs -3% year-on-year growth estimated for the sector)
What happened in the past to high leverage property companies? They were quietly "faded out" to a non-event
1) Anbang - $310 bn assets including Waldorf Astoria (NY). Failed restructuring. China government seized control. $5bn valuation at the firesale, vs #Evergrande $4 bn now
1) Anbang - $310 bn assets including Waldorf Astoria (NY). Failed restructuring. China government seized control. $5bn valuation at the firesale, vs #Evergrande $4 bn now
2) HNA - purchased prized property assets in debt fueled growth,including investing in Hilton & as the top investor of Deutsche Bank. $200bn debt it couldn't pay. Chairmain Founder 'fell' and died on holiday
3) Dalian Wanda - China's largest mall developer, bought Atletico Madrid & AMC. $6bn debt due 2020. Tycoon (former richest Asian) lost -$32bn salvaging the company
Moral of the story? Nothing dramatic happens. These companies get "managed".
In China, the largest banks are State Owned Enterprises. These issues are gradually resolved with moralsuasion or a phone call from the CCP.
In China, the largest banks are State Owned Enterprises. These issues are gradually resolved with moralsuasion or a phone call from the CCP.
In the West, the government doesn't have these "one phonecall" tools. This is what Western media doesn't grasp.
The CCP is extremely smart and will do anything to ensures social and financial stability.
The CCP is extremely smart and will do anything to ensures social and financial stability.
What about crypto?
Equity Market impact: Evergrande's stock has *already* dropped -85% (1 year), pricing in cash flow issues. Its market cap of $4bn isn't a systemic risk. Crypto has seen a bull market despite a China property selldown --> No Correlation
Equity Market impact: Evergrande's stock has *already* dropped -85% (1 year), pricing in cash flow issues. Its market cap of $4bn isn't a systemic risk. Crypto has seen a bull market despite a China property selldown --> No Correlation
Credit Market impact: As in the past, the CCP will "manage" the deleveraging process. Just like the media FUD on Anbang, HNA, Dalian Wanda -- likely no shock waves are going to happen in China's credit markets.
Bottom Line: this won't impact crypto
Bottom Line: this won't impact crypto
Final comment: I spoke to 2 Bloomberg reporters last week. Their bonu$ was dependent on how much their stories could impact a company's stock price.
So don't believe everything you read.
So don't believe everything you read.
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