9 ms·

Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate. If their economy continues its downtu

Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate. If their economy continues its downturn then this precedent would hold for all debt. I would really watch personal funds and investments and insure they dont hold any chinese debt as an asset.

jonahbenton 5y ago
Uh, Tether?
- vmception 5y ago
  because some guy on twitter said any Tether exposure to commercial paper = 150% exposure to imploding evergrande bonds this is the funniest meme, “we made it up” https://youtu.be/GM-e46xdcUo https://youtu.be/GM-e46xdcUo Its a pretty clever meme because pointing out how dumb it is makes it seem like that person doesnt believe there is anything else wrong with tether, immediate derailing their criticism of the latest rumor, allowing for literally any rumor to be masqueraded as truth.
  - raesene9 5y ago
    I don't think Tether is in purely Evergrande bonds, but I do think Tether has a load of Chinese bonds/commercial paper, and if an Evergrande default causes a general reduction in the value of those, Tether will be in a very sticky position as they'll have a large hole in their reserves...
    - AlexCoventry 5y ago
      Why do you believe that?
      - raesene9 5y ago
        So AFAIK Tether has ~$30b of commercial paper (https://tether.to/wp-content/uploads/2021/08/tether_assuranceconsolidated_reserves_report_2021-06-30.pdf https://tether.to/wp-content/uploads/2021/08/tether_assuranc...) which would make it one of the larger commercial paper operators in the US market if it operated there. From what I've read, other paricipants in the US market have stated they don't see Tether partipating there, to that kind of volume. Combine that with the fact that, until recently, China was a huge market for crypto both miners and traders, and it seems likely that the large chinese commercial paper market would be where Tether would have at least some of it's money.
        lamontcg 5y ago
        I don't understand why anyone believes Tether when they say they own $30b of commercial paper. The fact that nobody in any of the commercial paper markets know who they are suggests that Tether is once again at least being misleading if not lying.
        manquer 5y ago
        They have to own something for $30B+ [1]. It is unlikely it is anything in significant in the U.S, both because it is harder not to be noticed as you say and also greater risk of interference from regulators etc. It is not unreasonable to think China has good chunk of those deposits, and in China real estate is a big component of the economy and growth in the recent years. Chinese real estate market is both large enough and opaque to be able to ingest that kind of capital. [1] It is possible they are issuing tokens out of thin air without actually taking in equivalent USD/fiat currency, but given it trading volume on crypto exchanges it seems unlikely say 90+% of their $73B + are tokens fake. Even 10% is $7.3B a very significant sum.
        lamontcg 5y ago
        They're probably exchanging Tether for loans that their counterparties write against crypto collateral and calling that "commercial paper". Anything else is ridiculous because people would notice it. If it is all self-contained withing crypto then it makes vastly more sense. Once you think of a cold wallet full of bitcoin as having value like real estate[*] then it makes sense to take out tether loans against that collateral. They need to make up something though to sound responsible so they call it "commercial paper" and for some reason nobody questions if they might be grossly twisting the meaning of those two words. [*] Which I don't, but everyone involved in crypto certainly does.
      - lmm 5y ago
        If their commercial paper is something other than Evergrande, surely they'd have said so by now. (Assuming it exists at all, of course)
        vmception 5y ago
        They dont need to respond to every rumor, its been a whole decade, they’ve weathered much greater crisis of confidence with far below $1 exchange rates. The people that do care would have said prove it, aka “disprove the random rumor”, and wouldn't be satisfied with any statement or attestation or anything greater that they’ve never done anyway. At this point whats the use of energy in that direction anymore. Even audited stablecoins are a systemic risk to the crypto ecosystem. So at this point your either in or out. Hot potato. Just like all the other markets where Lehman bros and Aig got such great audits and ratings. I’m not trying to squash conversation about it, just offering a perspective because really the standard being levied applies to USDC, GUSD, PAXOS and others who have grown to similarly large heights. Even the earlier assumption that Tether wouldnt have US assets is made up on the spot, its weird! They were banking in Peurto Rico for years! Two US regulators didnt move to freeze their assets they just said “update your disclaimers”. Why dont we make a rumor that they hold Hertz bonds and Certificates of Deposit at Capital One Bank? Its arbitrary! They should prove they dont have Hertz bonds just so I can say “I …. dont believe you.”
        colinmhayes 5y ago
        They have said it's not Evergrande.
    - alasdair_ 5y ago
      Why would anyone care? It's not like Tether has ever been audited and there is so much other shadiness that it's more than likely there is already a massive hole in the Tether reserves.
rp1 5y ago
China has been waging economic warfare via equity markets for a while now. The U.S. hasn’t done anything to protect investors from billions in losses. Totally embarrassing.
- HenryKissinger 5y ago
  The U.S. shouldn't protect investors from the free market? That's the free market at work. Investors are not entitled to be paid. All investments carry risk.
  - theandrewbailey 5y ago
    I agree with that, but that didn't happen in 2008.
    - chii 5y ago
      it did - some people left holding the bag lost out. The banks were playing the middleman, they weren't the ones taking the risks. It could be said that the rating agencies were complicit, since their ratings were trusted by various parties by assumption and did not do their own due diligence.
  - beervirus 5y ago
    Yes, the CCP changing the rules is “the free market.”
    - emkoemko 5y ago
      free market where if i want to invest into a Chinese company i have to invest into a fake company in the Bahamas? If i want to really invest into China there are crazy rules and in the end they will just take your ip...
    - vkou 5y ago
      If I build a company with the assumption that the rules of the locale it operates never change, I'm certain that I'm the fool in the conversation. What you describe is a known risk that anyone with a lick of sense should be accounting for, before they invest.
ChuckMcM 5y ago
Mark Levine had some good thoughts on this situation, and it really does seem to encapsulate the entire Chinese "free market" experiment in a single entity. I hope that market regulators all around the planet are paying attention to the challenges of trying to "control" market movements in order to promote an agenda (whether it is protecting pension funds or national prestige). If you've got your "thumb on the scale" as the saying goes, there will always be forces that try to exploit that condition.
- AlexCoventry 5y ago
  Do you mean Matt Levine? If not, could you give a link, please?
  - ChuckMcM 5y ago
    Yes, Matt, and I get the newsletter so I don't know where the link is, but here is an excerpt: EDIT found the link: https://www.bloomberg.com/opinion/articles/2021-09-21/evergrande-borrowed-from-everyone https://www.bloomberg.com/opinion/articles/2021-09-21/evergr... From Matt Levine: It seems to me that what is interesting about Evergrande is not so much the magnitude of its debt problems but their variety. Evergrande owes money to Chinese banks. It owes money to foreign hedge funds, and foreign investors own its stock. It owes money to suppliers, and to Chinese retail investors in those wealth management products. And it owes apartments to buyers. And the retail investors who bought Evergrande wealth management products were often also Evergrande homeowners, because the products were sold at Evergrande buildings: “My parents put the bulk of their savings, which is Rmb200,000 and not a lot by Evergrande’s standard, into its [wealth management products],” said the daughter of one investor who asked to be identified by her surname Xu. She said an Evergrande financial adviser stationed in an apartment tower built by the company in central China had persuaded her mother to invest. “They wouldn’t have trusted Evergrande’s wealth products had they not bought the developer’s apartment,” she said. In fact they were apparently advertised in the elevators: "I bought from the property managers after seeing the ad in the elevator, as I trusted Evergrande for being a Fortune Global 500 company,” said the owner of an Evergrande property in the conglomerate's home province of Guangdong surnamed Du. And it also sold the wealth management products to employees: When the troubled Chinese property giant Evergrande was starved for cash earlier this year, it turned to its own employees with a strong-arm pitch: Those who wanted to keep their bonuses would have to give Evergrande a short-term loan. Some workers tapped their friends and family for money to lend to the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans, which had been packaged as high-interest investments. … The extent of the campaign and how much money it might have raised were unclear. Employees were told to each invest a certain amount of money in Evergrande Wealth products, and that if they failed to do so, their performance pay and bonuses would be docked, employees told Anhui. These products were simultaneously (1) “categorised as fixed-income products suitable for ‘conservative investors seeking steady returns’” and (2) sold with 11% yields. Seems bad! When a big company runs out of money, the basic questions are (1) who gets paid and who doesn’t and (2) should the government pay its debts for it? Those questions are interconnected. There is an ordinary way to answer the first question, some waterfall of claim seniority. You look at the company’s capital structure and say “well these people have senior claims and will get paid back, and these people have junior claims and won’t, and these other people are somewhere in the middle and might get some recovery.” And there are complex and subtle questions about the best way to preserve value in the business: Perhaps you have the legal right to stiff customers (perhaps their deposits aren’t particularly senior claims), but if you do that you’ll never get any more customers, so you treat them better than you are legally required to. And the managers of the business and the creditors and the lawyers work together to figure out a plan that maximizes the recovery for everyone. But if the ordinary process to answer the first question ends up with an answer like “sympathetic ordinary people lose their life savings,” or “politically connected people lose everything,” or “the banking system loses a lot of money and becomes undercapitalized,” or for that matter “housing prices collapse,” then that is a good reason for the government to step in. And if the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply. If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds. Bloomberg’s Joe Weisenthal and Tracy Alloway did an Odd Lots episode with analyst Travis Lundy about this, in which he gives his best guess at a waterfall of repayment. “I think that if you start from the ranking of who ends up coming out well on this, if you had to ask, this is the Communist Party of China who's the most important stakeholder in this,” he says, and then goes through a list of claimants ordered by, basically, how politically sympathetic they are. This seems like a more reasonable analysis than, like, looking at the corporate structure and legal document to see which claims are more senior. Much of the writing about Evergrande has been about “is this China’s Lehman moment?” The main lesson of Lehman was that the collapse of a big levered interconnected firm could cause serious economic damage, and since Lehman, financial regulators in the U.S. and Europe have done a lot of work on reducing leverage and interconnection and damage.
Laforet 5y ago
Much of their domestic debt has been quietly swapped for equity and commercial papers over the past few years. A tonne of unsecured debt that they have no intention nor ability to pay back. The reason why Evergrande has accumulated so much foreign debt in the first place is because no domestic bank wanted to touch them with a ten foot pole. After all they have effectively defaulted once already by unilaterally declaring an equity swap on 130 billion CNY worth of maturing bonds in September last year.
topper-123 5y ago
> Evergrande, the world's most indebted developer … grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds. Sounds like this is mostly domestic debt, so they cant make this go away by saying they wont support international debt holders. Seems like the CCP in a tough spot here.
hogFeast 5y ago
There is no distinction between foreign held and internal debt. The offshore debt is owned predominantly by Chinese state banks. There are a few funds that hold these bonds (Ashmore is one), but there is a massive dollar surplus within China and so all the state banks were looking for somewhere to invest money...and Evergrande created a way to do that.
seanmcdirmid 5y ago
> Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate. This will put a huge hamper on China's FDI: if foreign investors are given a worse place in line in case of insolvency, they will either shy away from investing at all or demand higher returns for the extra risk.
- urthor 5y ago
  Chinese FDI inflows and outflows are actually almost equivalent in USD terms. Furthermore, China is well known for placing huge restrictions on capital outflow in its economy. I think it's safe to say that even if every last dollar of FDI dried up, China would be more than fine with its domestic capital supply. Furthermore, the identities of the big FDI investors are dominated by physical manufacturers investing in onshore operations. Not so much liquid global securities trading.
fspeech 5y ago
Clearing firm Clearstream said all coupons were paid. It is insteresting how little patience people have. There is an authoritative source here. People could just wait for a few more hours for it: https://news.yahoo.com/evergrande-makes-overdue-interest-payments-024059615.html https://news.yahoo.com/evergrande-makes-overdue-interest-pay...

jonahbenton 5y ago

Uh, Tether?

vmception 5y ago
because some guy on twitter said any Tether exposure to commercial paper = 150% exposure to imploding evergrande bonds this is the funniest meme, “we made it up” https://youtu.be/GM-e46xdcUo https://youtu.be/GM-e46xdcUo Its a pretty clever meme because pointing out how dumb it is makes it seem like that person doesnt believe there is anything else wrong with tether, immediate derailing their criticism of the latest rumor, allowing for literally any rumor to be masqueraded as truth.
- raesene9 5y ago
  I don't think Tether is in purely Evergrande bonds, but I do think Tether has a load of Chinese bonds/commercial paper, and if an Evergrande default causes a general reduction in the value of those, Tether will be in a very sticky position as they'll have a large hole in their reserves...
  - AlexCoventry 5y ago
    Why do you believe that?
    - raesene9 5y ago
      So AFAIK Tether has ~$30b of commercial paper (https://tether.to/wp-content/uploads/2021/08/tether_assuranceconsolidated_reserves_report_2021-06-30.pdf https://tether.to/wp-content/uploads/2021/08/tether_assuranc...) which would make it one of the larger commercial paper operators in the US market if it operated there. From what I've read, other paricipants in the US market have stated they don't see Tether partipating there, to that kind of volume. Combine that with the fact that, until recently, China was a huge market for crypto both miners and traders, and it seems likely that the large chinese commercial paper market would be where Tether would have at least some of it's money.
      - lamontcg 5y ago
        I don't understand why anyone believes Tether when they say they own $30b of commercial paper. The fact that nobody in any of the commercial paper markets know who they are suggests that Tether is once again at least being misleading if not lying.
        manquer 5y ago
        They have to own something for $30B+ [1]. It is unlikely it is anything in significant in the U.S, both because it is harder not to be noticed as you say and also greater risk of interference from regulators etc. It is not unreasonable to think China has good chunk of those deposits, and in China real estate is a big component of the economy and growth in the recent years. Chinese real estate market is both large enough and opaque to be able to ingest that kind of capital. [1] It is possible they are issuing tokens out of thin air without actually taking in equivalent USD/fiat currency, but given it trading volume on crypto exchanges it seems unlikely say 90+% of their $73B + are tokens fake. Even 10% is $7.3B a very significant sum.
        lamontcg 5y ago
        They're probably exchanging Tether for loans that their counterparties write against crypto collateral and calling that "commercial paper". Anything else is ridiculous because people would notice it. If it is all self-contained withing crypto then it makes vastly more sense. Once you think of a cold wallet full of bitcoin as having value like real estate[*] then it makes sense to take out tether loans against that collateral. They need to make up something though to sound responsible so they call it "commercial paper" and for some reason nobody questions if they might be grossly twisting the meaning of those two words. [*] Which I don't, but everyone involved in crypto certainly does.
    - lmm 5y ago
      If their commercial paper is something other than Evergrande, surely they'd have said so by now. (Assuming it exists at all, of course)
      - vmception 5y ago
        They dont need to respond to every rumor, its been a whole decade, they’ve weathered much greater crisis of confidence with far below $1 exchange rates. The people that do care would have said prove it, aka “disprove the random rumor”, and wouldn't be satisfied with any statement or attestation or anything greater that they’ve never done anyway. At this point whats the use of energy in that direction anymore. Even audited stablecoins are a systemic risk to the crypto ecosystem. So at this point your either in or out. Hot potato. Just like all the other markets where Lehman bros and Aig got such great audits and ratings. I’m not trying to squash conversation about it, just offering a perspective because really the standard being levied applies to USDC, GUSD, PAXOS and others who have grown to similarly large heights. Even the earlier assumption that Tether wouldnt have US assets is made up on the spot, its weird! They were banking in Peurto Rico for years! Two US regulators didnt move to freeze their assets they just said “update your disclaimers”. Why dont we make a rumor that they hold Hertz bonds and Certificates of Deposit at Capital One Bank? Its arbitrary! They should prove they dont have Hertz bonds just so I can say “I …. dont believe you.”
      - colinmhayes 5y ago
        They have said it's not Evergrande.
  - alasdair_ 5y ago
    Why would anyone care? It's not like Tether has ever been audited and there is so much other shadiness that it's more than likely there is already a massive hole in the Tether reserves.

rp1 5y ago

China has been waging economic warfare via equity markets for a while now. The U.S. hasn’t done anything to protect investors from billions in losses. Totally embarrassing.

HenryKissinger 5y ago
The U.S. shouldn't protect investors from the free market? That's the free market at work. Investors are not entitled to be paid. All investments carry risk.
- theandrewbailey 5y ago
  I agree with that, but that didn't happen in 2008.
  - chii 5y ago
    it did - some people left holding the bag lost out. The banks were playing the middleman, they weren't the ones taking the risks. It could be said that the rating agencies were complicit, since their ratings were trusted by various parties by assumption and did not do their own due diligence.
- beervirus 5y ago
  Yes, the CCP changing the rules is “the free market.”
  - emkoemko 5y ago
    free market where if i want to invest into a Chinese company i have to invest into a fake company in the Bahamas? If i want to really invest into China there are crazy rules and in the end they will just take your ip...
  - vkou 5y ago
    If I build a company with the assumption that the rules of the locale it operates never change, I'm certain that I'm the fool in the conversation. What you describe is a known risk that anyone with a lick of sense should be accounting for, before they invest.

ChuckMcM 5y ago

Mark Levine had some good thoughts on this situation, and it really does seem to encapsulate the entire Chinese "free market" experiment in a single entity. I hope that market regulators all around the planet are paying attention to the challenges of trying to "control" market movements in order to promote an agenda (whether it is protecting pension funds or national prestige). If you've got your "thumb on the scale" as the saying goes, there will always be forces that try to exploit that condition.

AlexCoventry 5y ago
Do you mean Matt Levine? If not, could you give a link, please?
- ChuckMcM 5y ago
  Yes, Matt, and I get the newsletter so I don't know where the link is, but here is an excerpt: EDIT found the link: https://www.bloomberg.com/opinion/articles/2021-09-21/evergrande-borrowed-from-everyone https://www.bloomberg.com/opinion/articles/2021-09-21/evergr... From Matt Levine: It seems to me that what is interesting about Evergrande is not so much the magnitude of its debt problems but their variety. Evergrande owes money to Chinese banks. It owes money to foreign hedge funds, and foreign investors own its stock. It owes money to suppliers, and to Chinese retail investors in those wealth management products. And it owes apartments to buyers. And the retail investors who bought Evergrande wealth management products were often also Evergrande homeowners, because the products were sold at Evergrande buildings: “My parents put the bulk of their savings, which is Rmb200,000 and not a lot by Evergrande’s standard, into its [wealth management products],” said the daughter of one investor who asked to be identified by her surname Xu. She said an Evergrande financial adviser stationed in an apartment tower built by the company in central China had persuaded her mother to invest. “They wouldn’t have trusted Evergrande’s wealth products had they not bought the developer’s apartment,” she said. In fact they were apparently advertised in the elevators: "I bought from the property managers after seeing the ad in the elevator, as I trusted Evergrande for being a Fortune Global 500 company,” said the owner of an Evergrande property in the conglomerate's home province of Guangdong surnamed Du. And it also sold the wealth management products to employees: When the troubled Chinese property giant Evergrande was starved for cash earlier this year, it turned to its own employees with a strong-arm pitch: Those who wanted to keep their bonuses would have to give Evergrande a short-term loan. Some workers tapped their friends and family for money to lend to the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans, which had been packaged as high-interest investments. … The extent of the campaign and how much money it might have raised were unclear. Employees were told to each invest a certain amount of money in Evergrande Wealth products, and that if they failed to do so, their performance pay and bonuses would be docked, employees told Anhui. These products were simultaneously (1) “categorised as fixed-income products suitable for ‘conservative investors seeking steady returns’” and (2) sold with 11% yields. Seems bad! When a big company runs out of money, the basic questions are (1) who gets paid and who doesn’t and (2) should the government pay its debts for it? Those questions are interconnected. There is an ordinary way to answer the first question, some waterfall of claim seniority. You look at the company’s capital structure and say “well these people have senior claims and will get paid back, and these people have junior claims and won’t, and these other people are somewhere in the middle and might get some recovery.” And there are complex and subtle questions about the best way to preserve value in the business: Perhaps you have the legal right to stiff customers (perhaps their deposits aren’t particularly senior claims), but if you do that you’ll never get any more customers, so you treat them better than you are legally required to. And the managers of the business and the creditors and the lawyers work together to figure out a plan that maximizes the recovery for everyone. But if the ordinary process to answer the first question ends up with an answer like “sympathetic ordinary people lose their life savings,” or “politically connected people lose everything,” or “the banking system loses a lot of money and becomes undercapitalized,” or for that matter “housing prices collapse,” then that is a good reason for the government to step in. And if the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply. If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds. Bloomberg’s Joe Weisenthal and Tracy Alloway did an Odd Lots episode with analyst Travis Lundy about this, in which he gives his best guess at a waterfall of repayment. “I think that if you start from the ranking of who ends up coming out well on this, if you had to ask, this is the Communist Party of China who's the most important stakeholder in this,” he says, and then goes through a list of claimants ordered by, basically, how politically sympathetic they are. This seems like a more reasonable analysis than, like, looking at the corporate structure and legal document to see which claims are more senior. Much of the writing about Evergrande has been about “is this China’s Lehman moment?” The main lesson of Lehman was that the collapse of a big levered interconnected firm could cause serious economic damage, and since Lehman, financial regulators in the U.S. and Europe have done a lot of work on reducing leverage and interconnection and damage.

Laforet 5y ago

Much of their domestic debt has been quietly swapped for equity and commercial papers over the past few years. A tonne of unsecured debt that they have no intention nor ability to pay back. The reason why Evergrande has accumulated so much foreign debt in the first place is because no domestic bank wanted to touch them with a ten foot pole. After all they have effectively defaulted once already by unilaterally declaring an equity swap on 130 billion CNY worth of maturing bonds in September last year.

topper-123 5y ago

> Evergrande, the world's most indebted developer … grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds. Sounds like this is mostly domestic debt, so they cant make this go away by saying they wont support international debt holders. Seems like the CCP in a tough spot here.

hogFeast 5y ago

There is no distinction between foreign held and internal debt. The offshore debt is owned predominantly by Chinese state banks. There are a few funds that hold these bonds (Ashmore is one), but there is a massive dollar surplus within China and so all the state banks were looking for somewhere to invest money...and Evergrande created a way to do that.

seanmcdirmid 5y ago

> Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate. This will put a huge hamper on China's FDI: if foreign investors are given a worse place in line in case of insolvency, they will either shy away from investing at all or demand higher returns for the extra risk.

urthor 5y ago
Chinese FDI inflows and outflows are actually almost equivalent in USD terms. Furthermore, China is well known for placing huge restrictions on capital outflow in its economy. I think it's safe to say that even if every last dollar of FDI dried up, China would be more than fine with its domestic capital supply. Furthermore, the identities of the big FDI investors are dominated by physical manufacturers investing in onshore operations. Not so much liquid global securities trading.

fspeech 5y ago

Clearing firm Clearstream said all coupons were paid. It is insteresting how little patience people have. There is an authoritative source here. People could just wait for a few more hours for it: https://news.yahoo.com/evergrande-makes-overdue-interest-payments-024059615.html https://news.yahoo.com/evergrande-makes-overdue-interest-pay...