Thread by @BaldingsWorld

I think there is an important definitional point that is taken for granted but shouldn't be about Evergrande. What do we mean by bailout? In the west we typically take it to mean a company is about the declare bankruptcy or collapse and the government steps up and writes 1/n

A big check to keep the company going. In China for many reasons, bail out needs to be defined much more broadly. What if a local SOE buys one of the unfinished developments at near historical investment cost. Is that a bail out? Likely yes. What if the government 2/n

Tells retail WMP holders they get nothing for redemption in the next 30 days but if they extend the duration 5 years and lower the interest rate, they will get paid off. Is that a bail out? Probably. What if a bad bank asset manager buys a loan from a mid size bank above 3/n

some quoted bond price to ensure the bank does not have to write down the value of a fixed income asset? Is that a bail out? Yes. China has 5,000 years of history and each year has 5,000 examples of how to do bail outs so the functional forms are effectively limitless 4/n

A bailout can actually take. So then how do we actually define what constitutes a bail out? The first test I would actually use is whether there are material losses imposed. For instance, extending the duration and lowering the interest rate yes imposes a loss but there is 5/n

a strong argument it is not a material loss. By comparison in Chinese bankruptcy, most recovery will typically come in at 20-30%. That's a material loss. Extending duration and lowering interest rate is not a material loss by comparison. Having done some work in this area 6/n

I don't think you can apply a single number for all industries but for Evergrande, given the hard asset nature of the sector I would expect many projects to be sold to smaller players with government support to purchase them, extending durations, and lowering rates. 7/n

Would that qualify as a bail out to avoid any material imposition of losses? I think the clear answer would be yes and that would need to be considered a bail out even if it takes place under various corporations.