For debt nerds some thoughts on Evergrande's restructure:
PBOC Yi Gang’s remarks that this will be a market-oriented, creditors will be treated according to seniority isn’t new to investors. China’s been pushing for this since at least 2017 when it began allowing record defaults
The issue for Evergrande’s global bondholders won’t be about seniority -- nearly all the offshore bonds hold the same status. Instead, all eyes are on whether notes issued by different units of Evergrande will be considered pari passu when it comes to any potential haircuts
It’s not clear whether bonds issued by Evergrande’s Hong Kong-listed unit (EVERRE) or those sold by a Scenery Journey (TIANHL) that have keepwells from its main onshore property business, Hengda Real Estate, will be considered on an equal footing in a restructuring scenario
Evergrande's restructure will also be a key test for the keepwell structure -- essentially a gentleman’s agreement involving a pledge to keep an offshore issuer solvent which may not be legally recognized.
2/ China’s efforts to prevent a developer debt crisis from sparking financial contagion helped stemmed the biggest selloff in a decade.
But Xi Jinping’s government still faces a long list of challenges as it tries to maintain calm in its $13 trillion credit market in 2022.
3/ There've been seismic changes in China's credit markets this year. In 2022 watch out for:
* Surprise defaults
* Home sales
* Policy easing
* Pickier investors
Tentative signs that Chinese authorities may be relaxing some property policies policies has stemmed panic-selling in credit markets. That won’t offer much relief for many developers.
This is why 👇 THREAD 1/
2/ It looks like Beijing will use state firms to ease a historic liquidity crisis: government-linked firms may be used to acquire distressed developers triggered the first real gains for property notes since Evergrande ran into trouble. shorturl.at/tzTZ2
3/ State developers are already selling sizable bond deals in a revival of the interbank bond market. Cash could be used to buy up private developers’ assets as they try to raise cash.