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That's a $150 million payment that they can't make. The concern is how are they going to make the future payments? Their total liabilities are on the order of

by blihp 5y ago

That's a $150 million payment that they can't make. The concern is how are they going to make the future payments? Their total liabilities are on the order of $300 billion. Fantasia (mentioned in the story) is another China real estate developer in trouble. The concern is that this is the tip of the iceberg.

fer 5y ago
> Their total liabilities are on the order of $300 billion ~300 billion is the size of their debt (485 at the end of H1 2021). Their assets are at +2 trillion, +1 trillion in real estate alone. Their problem is that with their current cash flow they can't pay their debt, ever, and now, they can't even keep up with the interest. But they're still in a position where selling off part of their inventory can offset the debt, and to my knowledge, that's what they've been trying to do. That is, if their financial statements area real. That's the quid here, their position isn't particularly anomalous, but the market cap sits at 33 billion, very far from their declared assets, meaning the market doesn't believe those statements. Thats 60 to 1, where most REIT sit at around 2 to 1. Their main problem is the large amount of unfinished homes (read: not producing any income) and you need money to fix that. My guess is that the government will step in to fix that point in particular.
- ButtSpark69 5y ago
  How sure are you their assets are really worth 2T? Isn't that a lot of the question here?
  - throwaway2037 5y ago
    You are right to ask that question. Generally, real estate is considered a low liquidity asset. I wonder how much their real estate assets are discounted during buy-side analysis. From Wiki (https://en.wikipedia.org/wiki/Evergrande_Group https://en.wikipedia.org/wiki/Evergrande_Group), I looked at the source for total assets: https://finance.yahoo.com/quote/3333.HK/balance-sheet?p=3333.HK https://finance.yahoo.com/quote/3333.HK/balance-sheet?p=3333... At end of 2020: Total assets: 2.3T CNY -> 359B USD (@ 6.40 CNY/USD) Total debt : 0.7T CNY -> 109B USD (@ 6.40 CNY/USD)
  - oarabbus_ 5y ago
    Well, we can be reasonably confident their assets will not be worth $2T if they have to fire sale them
    - _0ffh 5y ago
      As it seems like virtually all buying in this market comes from developers and investors hoping to sell at a higher price later, they'll probably be lucky to get a fraction of that.
- chalst 5y ago
  Are you giving the book value of their assets? That tends to collapse when the asset holder is forced to sell in a hurry.
JamisonM 5y ago
All of which is unrelated to the idea of some sort of /global/ USD short squeeze, which is just a nonsense idea. Holding debt in another nation's currency involves risks but it is also the case that bond issuers can mitigate that risk with financial tools at the time of borrowing. It is doubly true that the CNY has and still is trading within a narrow band over the life of these debts, currency risks are not a factor in this story in any way.

by blihp 5y ago

fer 5y ago

> Their total liabilities are on the order of $300 billion ~300 billion is the size of their debt (485 at the end of H1 2021). Their assets are at +2 trillion, +1 trillion in real estate alone. Their problem is that with their current cash flow they can't pay their debt, ever, and now, they can't even keep up with the interest. But they're still in a position where selling off part of their inventory can offset the debt, and to my knowledge, that's what they've been trying to do. That is, if their financial statements area real. That's the quid here, their position isn't particularly anomalous, but the market cap sits at 33 billion, very far from their declared assets, meaning the market doesn't believe those statements. Thats 60 to 1, where most REIT sit at around 2 to 1. Their main problem is the large amount of unfinished homes (read: not producing any income) and you need money to fix that. My guess is that the government will step in to fix that point in particular.

ButtSpark69 5y ago
How sure are you their assets are really worth 2T? Isn't that a lot of the question here?
- throwaway2037 5y ago
  You are right to ask that question. Generally, real estate is considered a low liquidity asset. I wonder how much their real estate assets are discounted during buy-side analysis. From Wiki (https://en.wikipedia.org/wiki/Evergrande_Group https://en.wikipedia.org/wiki/Evergrande_Group), I looked at the source for total assets: https://finance.yahoo.com/quote/3333.HK/balance-sheet?p=3333.HK https://finance.yahoo.com/quote/3333.HK/balance-sheet?p=3333... At end of 2020: Total assets: 2.3T CNY -> 359B USD (@ 6.40 CNY/USD) Total debt : 0.7T CNY -> 109B USD (@ 6.40 CNY/USD)
- oarabbus_ 5y ago
  Well, we can be reasonably confident their assets will not be worth $2T if they have to fire sale them
  - _0ffh 5y ago
    As it seems like virtually all buying in this market comes from developers and investors hoping to sell at a higher price later, they'll probably be lucky to get a fraction of that.
chalst 5y ago
Are you giving the book value of their assets? That tends to collapse when the asset holder is forced to sell in a hurry.

JamisonM 5y ago

All of which is unrelated to the idea of some sort of /global/ USD short squeeze, which is just a nonsense idea. Holding debt in another nation's currency involves risks but it is also the case that bond issuers can mitigate that risk with financial tools at the time of borrowing. It is doubly true that the CNY has and still is trading within a narrow band over the life of these debts, currency risks are not a factor in this story in any way.