Short sellers double bet on China Evergrande bonds


Evergrande Real Estate Group Co., Ltd. update

International investors’ bets on China Evergrande bonds, a developer under pressure, more than doubled, indicating that sentiment towards one of Asia’s most famous dollar borrowers has deteriorated further.

According to Markit’s data, the face value of Evergrande’s bonds that have been lent to other investors has risen by nearly US$400 million, more than double the amount in early June.

Nearly US$170 million of the company’s US$2 billion bonds due in 2022 has been lent, up from US$50 million at the beginning of the year. On Wednesday, the bond was traded at 57 cents per dollar, while in May it was almost at face value.

This data can be used as a bearish representative of Evergrande. Investors short-sell bonds by borrowing and selling, hoping to buy them back at a cheaper price in the future and return the bonds to the original holders who have made a profit.

Investors’ actions against Evergrande coincided with the traumatic period of the company and other debt-ridden developers in China.

Evergrande has Try to reduce As part of the country’s efforts to order the entire industry to deleverage, its huge debts.But developers are surrounded by a series of events almost every day, which have raised concerns about their financial situation, including Asset freeze And the sales suspension of some pre-sale development projects.

As of March, Evergrande had RMB 674 billion (US$104.3 billion) of interest-bearing liabilities. Its stock price has fallen 64% this year.

According to Bank of America data, China is the world’s second largest US dollar corporate bond market, with a scale of US$425 billion, second only to the United States. More than half of its US$100 billion high-yield bond market is in a downturn. Evergrande accounts for 6% of the Bloomberg Barclays Asian High Yield Index.

Since the beginning of this year, the market has been in a state of tension default China Fortune Land Development, whose investors include BlackRock and HSBC, and Delay In the financial performance announcement of the bad debt manager China Huarong Asset Management. Bank of America analysts warned in July that Potential strain The global rebound of the Chinese market “is the biggest risk currently facing the global credit market.”

Evergrande is not the only Chinese developer targeted by short sellers. The bonds that Yuzhou Group and Shimao Group have lent have increased from less than US$200 million in early June to US$280 million and more than US$400 million, respectively.

According to data from Barclays, investors in Chinese developer bonds have lost an average of 13% this year, while the entire Asian high-yield bond market lost 2.7%.

“Investors have to reconsider their views on the industry,” said Avanti Save, Barclays’ Asia Credit Strategy Director, adding that the Chinese government “hopes to [its] The contribution to the economy is lower than in the past”.

Investors have Pile up into In the context of rapid urbanization in the world’s most populous country, China’s real estate has adopted a dollar-denominated bond market. The high yields available also provide an attractive alternative to low interest rates in the West.

But the government’s “Three Red Lines” PolicyThe goal of restricting developers’ borrowing based on three balance sheet indicators has shown Beijing’s concerns about debt and questioned its future role in the economy.

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