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Evergrande could be China's Lehman moment

CDDP

Legendary
Founder
Joined
Jan 8, 2021
Messages
7,842
TL;DR China is having big problems in their financial markets right now.

With algos busy chasing upward momentum in futures and global stocks, the biggest - if largely ignored story - remain the ongoing collapse of "China's Lehman", the $300+ billion China Evergrande, where following our earlier reports (see below) that a bank run emerged among creditors of the biggest and most indebted Chinese developer as its bonds were no longer eligible collateral in the repo market after a ratings downgrade, on Monday the rout went from bad to catastrophic as various Evergrande bonds crashed amid a liquidation frenzy, prompting China's stock exchanges to halt trade.

The Shanghai Stock Exchange said in a statement that it had temporarily suspended trading in China Evergrande Group's 6.98% July 2022 corporate bond following "abnormal fluctuations." The exchange had also suspended trading in the bond on Friday.




Shanghai exchange data showed the bonds sliding more than 25% to a low of 40.18 yuan after the resumption of trade on Monday afternoon. The company's 5.9% May 2023 Shenzhen-traded bond , which was also suspended, fell more than 35% after trading resumed. China Chengxin International Credit Rating Co (CCXI) downgraded Evergrande and its onshore bonds to AA from AAA on Thursday, and placed the company and its bonds on a watchlist for further downgrades, effectively freezing the company out of the repo market.

The endgame for Evergrande started on Friday, when China Securities Depository and Clearing Co. (CSDC) reduced the "conversion ratio" of the July 2022 bond to zero, effective Sept. 7. Other Evergrande bonds were not included in CSDC's table of conversion ratios on Friday as they no longer qualified for inclusion. The conversion ratio determines leverage limits for repo financing given a specific bond pledged as collateral. CSDC is owned by the Shanghai and Shenzhen stock exchanges. In other words, Evergrande suddenly finds itself with zero access to the repo market which funded it to the tune of billions heading into Friday.

According to Reuters, a director at a local brokerage said that the reduction in the conversion ratio was a "grey rhino" - a highly obvious yet ignored threat. "It was bound to happen."

Evergrande declined to comment. But in a statement on the Shanghai Stock Exchange on Monday, it acknowledged the impact of the rating downgrade on the bonds' use as pledged repo collateral. It said the bonds had previously been deemed appropriate only for qualified institutional investors, and the downgrade had no impact on investor suitability.

Worries surrounding Evergrande, which has been scrambling to raise funds to pay lenders and suppliers, have grown into broader concerns that a debt crisis could send shockwaves through China's banking system. Indeed, on Friday, an index of high-yield Chinese dollar issuers fell to its lowest level since spring 2020.

Overnight contagion spread to other Chinese dollar junk bonds, which were hammered amid concern that the liquidity crisis at China Evergrande Group will worsen, raising the cost of borrowing for real estate companies. Yields on the notes, which are dominated by property firms, rose to 12.9% on Friday, Bloomberg reported.

 

AgEngDawg

Legendary
Joined
Jan 9, 2021
Messages
9,402
TL;DR China is having big problems in their financial markets right now.

With algos busy chasing upward momentum in futures and global stocks, the biggest - if largely ignored story - remain the ongoing collapse of "China's Lehman", the $300+ billion China Evergrande, where following our earlier reports (see below) that a bank run emerged among creditors of the biggest and most indebted Chinese developer as its bonds were no longer eligible collateral in the repo market after a ratings downgrade, on Monday the rout went from bad to catastrophic as various Evergrande bonds crashed amid a liquidation frenzy, prompting China's stock exchanges to halt trade.

The Shanghai Stock Exchange said in a statement that it had temporarily suspended trading in China Evergrande Group's 6.98% July 2022 corporate bond following "abnormal fluctuations." The exchange had also suspended trading in the bond on Friday.




Shanghai exchange data showed the bonds sliding more than 25% to a low of 40.18 yuan after the resumption of trade on Monday afternoon. The company's 5.9% May 2023 Shenzhen-traded bond , which was also suspended, fell more than 35% after trading resumed. China Chengxin International Credit Rating Co (CCXI) downgraded Evergrande and its onshore bonds to AA from AAA on Thursday, and placed the company and its bonds on a watchlist for further downgrades, effectively freezing the company out of the repo market.

The endgame for Evergrande started on Friday, when China Securities Depository and Clearing Co. (CSDC) reduced the "conversion ratio" of the July 2022 bond to zero, effective Sept. 7. Other Evergrande bonds were not included in CSDC's table of conversion ratios on Friday as they no longer qualified for inclusion. The conversion ratio determines leverage limits for repo financing given a specific bond pledged as collateral. CSDC is owned by the Shanghai and Shenzhen stock exchanges. In other words, Evergrande suddenly finds itself with zero access to the repo market which funded it to the tune of billions heading into Friday.

According to Reuters, a director at a local brokerage said that the reduction in the conversion ratio was a "grey rhino" - a highly obvious yet ignored threat. "It was bound to happen."

Evergrande declined to comment. But in a statement on the Shanghai Stock Exchange on Monday, it acknowledged the impact of the rating downgrade on the bonds' use as pledged repo collateral. It said the bonds had previously been deemed appropriate only for qualified institutional investors, and the downgrade had no impact on investor suitability.

Worries surrounding Evergrande, which has been scrambling to raise funds to pay lenders and suppliers, have grown into broader concerns that a debt crisis could send shockwaves through China's banking system. Indeed, on Friday, an index of high-yield Chinese dollar issuers fell to its lowest level since spring 2020.

Overnight contagion spread to other Chinese dollar junk bonds, which were hammered amid concern that the liquidity crisis at China Evergrande Group will worsen, raising the cost of borrowing for real estate companies. Yields on the notes, which are dominated by property firms, rose to 12.9% on Friday, Bloomberg reported.


They have been playing fast and loose since last century.
 

PowerMEGA

God Fearing Patriot
Founder
Joined
Jan 9, 2021
Messages
641
So is Evergrande one of these RE companies that builds the ghost cities? I also saw videos of people walking around empty buildings that are only a couple of years old, but they're already falling apart. Is that who Evergrande is?
 

PowerMEGA

God Fearing Patriot
Founder
Joined
Jan 9, 2021
Messages
641
No they havent. They are just using a specific economic strategy called ISI development. Ireland uses it, so did Japan and South Korea.
If you believe that Ireland, Korea, and Japan have the same credibility and transparency as the most murderous regime in the history of humanity, then you are lost.
 

America 1st

The best poster on the board! Trumps lover! 🇺🇸
Founder
Joined
Jan 7, 2021
Messages
16,097
If you believe that Ireland, Korea, and Japan have the same credibility and transparency as the most murderous regime in the history of humanity, then you are lost.
He is just trolling.

Just a few months ago he was acknowledging the debt burden China is under. He knows it will collapse their economy, markets, and investor interest regardless of civil war.
 

BigBucnNole

Elite
Joined
Jan 15, 2021
Messages
2,158
He is just trolling.

Just a few months ago he was acknowledging the debt burden China is under. He knows it will collapse their economy, markets, and investor interest regardless of civil war.

Different topic. This shit show isnt why they collapse.
 

tiderollsonu

A man from Nantucket
Founder
Joined
Jan 9, 2021
Messages
6,279
For those that do not have a twatter account and cannot click that image to view all of it.

E_U83-TX0AgMeJF
 

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