Just an IB prospect but if they default should make for a pretty interesting restructuring. A lot of players with creditors, debtors but also the Chinese government. Moelis and Kirkland have been tapped to advise creditors.

They are trying to wind down some of the claims but looks like they will default on interest without action from the government. Buying equity is just a call option at this point, personally no idea what the Chinese government wants to do.

 

Agree. Waiting for the kids to say “HL RX is not prestigious because they don’t advice debtors” lmao

 
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This isn’t a shit question everyone. Not sure why OP is getting hit with monkey shit. In distressed investing, there’s a case to go long on the debt and short the equity with big banks, as was the case in 2008 with big banks in the U.S. The question was, back then, would the U.S. let their biggest banks (ex: Citi, Lehman, etc) fail? Evergrande is similar to Fannie Mae and Freddie Mac in 2008: would the government let these large GSE’s fail? The answer was no. They couldn’t let them fail. This is a case of whether the Chinese government will allow its largest RE Developer, Evergrande, to fail or not. OP, I think this really depends on whether the Chinese gov could bail them out or not. Chinese gov has a history of taking over distressed entities and consolidating them into the state as state institutions (look at some of their banks). There could be a case, but I’d look to see if any classic distressed investors are making moves on this.

No fucking reason why OP should be hit with monkey shit. If you knew your shit, you wouldn’t be hitting OP with monkey shit

 

Appreciate the backup as I was being serious. The way I see it Lehman was supposed to be a prime that happened holding a ton of dog shit while evergrande is nothing more than a high yield developer, albeit large. Being a high yield company, I could see a reasonable government letting them default and telling all the investors to kick rocks. But we know China isn’t that reasonable. If anyone with any expertise on China or RX in general has any high level thoughts here I would love to hear them.

 

I’d look into the historical impacts of Chinese gov consolidating corporations to become state institutions and their direct impact on debt and equity for those former corporations/now institutions. Although before, I would look into any Chinese RE-related catastrophes similar to evergrande and see what happened to them, and the result on their debt and equity. After this, look at historical impacts of Chinese government takeovers/consolidations on similar institutions such as Banks, etc. tied to the economic infrastructure of China. If Evergrande cannot fail, as I believe its too costly economically, it could produce a lovely buy point at .33 USD for common shares. If government rescues it, you should profit handsomely. Lastly, and probably most importantly, check to see the negative economic repercussions of an Evergrande collapse, and what would happen to the Chinese economy as a result. If it poses a substantial systematic risk and it is “too big to fail,” you should have a guiding point on what you’d want to do decision-wise.

I’ve given you the blueprint of where to look, and now you can make a better decision if you wanna invest. Up to you how you carry out your final decision. I think Evergrande will be consolidated into the state, most likely conclusion.

 

Evergrande is in trouble because the lines of credit that allowed it to sustain its overleveraged model have dried up suddenly. Lines of credit don't just evaporate unless you have strong signals: aka the CPC Central Committee deleting the entire private tutoring industry in late July, followed by a certain leader talking about "common prosperity" on Aug 17 and the CPC Publicity Department going after the entertainment industry on Sept 2, among many other actions.

Evergrande's famous Xu Jiayin resigned the same day as Xi Jinping's common prosperity speech, Aug 17. Literally two days later, Aug 19, the People's Bank and the Banking and Insurance Regulatory Commission had a talk with Evergrande. Providers of credit saw the writing on the wall and stopped extending credit to Evergrande. All this got confirmed by Ministry of Housing on August 31 which affirmed that "housing is for living, not for speculating", and afterwards Evergrande's issue eventually made it to headlines.

So in a word, Evergrande's problems are by design. The CPC did not "let this happen" so much as they are actually facilitating this process. When CPC decides to restrain or wipe out speculators, they do so. They wiped out speculators as one of their first acts as China's ruling party in 1949-50 using the police, they did so again in 2015, and now they're doing it yet again.

 

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