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I'm very naive about all of this, can I ask what this means? Evergrande has been ordered to liquidate, on paper this means that the Chinese subsidiary Hengda m

I'm very naive about all of this, can I ask what this means? Evergrande has been ordered to liquidate, on paper this means that the Chinese subsidiary Hengda must also liquidate, but China's just... not going to liquidate Hengda? So instead of Evergrande's creditors dividing up Evergrande+Hengda's assets only Evergrande's assets are going to be liquidated? If that's right, how does that work? Does Hengda get bought and the purchase price distributed to creditors? Does China just tell Evergrande's creditors "too bad"?

chasd00 3y ago
> Does China just tell Evergrande's creditors "too bad"? that sounds inline with standard operating procedures.
- miohtama 3y ago
  It also means that foreign direct investments to China will dry up. However they’d likely dry up any case due to US vs. China trade war.
  - thriftwy 3y ago
    That's the US, when they see money to be made in next quarter they go for it regardless. Not going to dry up.
  - loeg 3y ago
    A little bit, maybe, but probably not entirely. The joke is that debt investors have no memory. For example, Argentina has defaulted many times in recent memory but was still able to market a 100-year bond in 2017 (which it has already defaulted on).
    - berserk1010 3y ago
      miohtama is actually correct. Foreign investors have snatched back nearly 90% of the money they put into Chinese stocks this year (2023) https://markets.businessinsider.com/news/stocks/china-economy-chinese-stock-market-foreign-investor-cash-flow-money-2023-12 https://markets.businessinsider.com/news/stocks/china-econom... Foreign investment in China turns negative for first time https://asia.nikkei.com/Economy/Foreign-investment-in-China-turns-negative-for-first-time https://asia.nikkei.com/Economy/Foreign-investment-in-China-...
      - hmm37 3y ago
        Equities are different from bonds. Bonds are being snapped up by a lot of foreign investors.
        berserk1010 3y ago
        Chinese equities suffered a US$3.4 billion outflow from non-resident portfolios in the last month of 2023, while Chinese bonds only had a marginal US$189 million inflow for the same month, according to preliminary data from the Institute of International Finance (IIF) released on Thursday. https://www.scmp.com/economy/china-economy/article/3248078/china-hit-us34-billion-equities-outflow-wary-investors-eye-other-emerging-markets https://www.scmp.com/economy/china-economy/article/3248078/c... That said, once foreign bond buyers realize how much foreign creditors get back from the Evergrande debt (0 cents on the dollar), pretty sure foreign bond purchases will drop fast
        hmm37 3y ago
        There most be different data sets or different measurements, or categories of bonds being used. E.g. https://www.bloomberg.com/news/articles/2024-01-16/china-bond-inflow-extends-on-lucrative-swaps-pboc-easing-hope https://www.bloomberg.com/news/articles/2024-01-16/china-bon... "Global investors raised their holdings of Chinese bonds for a fourth straight month, capitalizing on a lucrative currency swap strategy to continue their gradual return to the world’s second-biggest debt market. They bought 181 billion yuan ($25 billion) of local yuan bonds on a net basis in the country’s main interbank market in December, taking their total holdings to the highest since April 2022, show Bloomberg calculations based on clearing house data." All of this is besides the point that foreigners are buying China's bonds, as @loeg has stated. They are essentially swapping out riskier equities for the safety of bonds which is by and large what is often taught to do when the economy isn't booming, only to switch back into equities when the downward cycle is over.
      - anon-sre-srm 3y ago
        It's curious why any FDI happened, except small amounts of speculative investment. Property rights in China have always been highly precarious. It's a huge economy but the game is arbitrary and rigged.
    - gottorf 3y ago
      Wow, I had no idea. There are very few entities in the world whose 100-year bonds I would entertain (maybe Switzerland?), and Argentina would certainly be near the bottom. I can't believe they sold two and three-quarter billion dollars'[0] worth! [0]: https://www.cnbc.com/2017/06/20/argentina-sees-strong-demand-for-surprise-100-year-bond.html https://www.cnbc.com/2017/06/20/argentina-sees-strong-demand...
      - asah 3y ago
        The sell size has all sorts of tricks, including bundling these bonds with better looking ones. 2.75B is 0.002% of the $133T worldwide bond market.
    - nradov 3y ago
      This is more a sign that the bond rating process remains broken despite some superficial reforms after the 2008 financial crisis. The major rating agencies gave that Argentine bond a B rating which allows many institutional investors to buy, despite the reality that it's obviously garbage. Then when the next default hits the fund managers can blame their losses on the rating agencies. Nothing changes.
      - photonbeam 3y ago
        Can anyone start a ratings agency? Or is it special somehow?
        nradov 3y ago
        Rating agencies have to comply with the SEC registration rules. There are currently 10, but only 3 dominate the market for large bond issues. In theory anyone could start a new one but in practice it would be difficult. The most recent company to obtain registration was Demotech which did it in 2022 but the company had been around since 1985. https://www.sec.gov/about/divisions-offices/office-credit-ratings/oversight-nrsros-small-entity-compliance-guide https://www.sec.gov/about/divisions-offices/office-credit-ra...
      - fspeech 3y ago
        In what sense did the rating agencies do a terrible job here? First B is a junk rating, not investment grade. Secondly if you get paid 7.9% for six years plus a market price of 30 cents on the dollar you get back more than 75 cents on the dollar, which would have been comparable to the performance of US 30 year Treasury issued around the same time. People do realize that if the principal is not paid back then whether there is one year or 90 years left on the bond term is irrelevant, right? In other words if you suspect the default risk is high you might as well buy the 100 year instead of the 10 year to get compensated by the higher premium.
        harpiaharpyja 3y ago
        Why would anyone put in a dollar to get 75 cents back?
    - enaaem 3y ago
      Creditors lose money all the time. It’s priced in the interest rate. They can still win in the long run with a diverse large portfolio.
colechristensen 3y ago
From CNN: >the implications for the company’s vast business in mainland China are unclear. >Hong Kong and the mainland city of Shenzhen — where Evergrande is based — have a mutual insolvency recognition agreement, but it’s “effectively inoperative” and courts in the city are “extremely unlikely” to recognize the offshore liquidator, Silvers said. What we have here is a complex set of semi-international legal issues on the other side of the world. I don't trust HN commentary on the subject. It seems very undecided for now and will be a sticky situation for China, Hong Kong, and foreign investors.
- miohtama 3y ago
  China is not a rule of law country. It really does not matter what laws or treaties say, as Xi can just snap fingers and the law will be different.
- Animats 3y ago
  South China Morning Post is trying to figure it out.[1] "A Hong Kong court on January 29 ordered the liquidation of China’s property giant Evergrande, but the firm said it would continue to operate in a case that has become a symbol of the nation’s deepening economic woes." "Given that most of the company’s assets are onshore, we do not think that offshore bondholders would receive substantial recovery proceeds from the liquidation. In addition, it is unclear whether the Hong Kong court’s liquidation order could be enforced onshore; there has been some mutual recognition of bankruptcy proceedings between Hong Kong and mainland courts, but the enforcement is difficult in practice." Reads like their reporter called up the usual suspects for comments. There's nothing at all about Evergrande in China Daily, which means there's no official position yet. [1] https://www.scmp.com/business/china-business/article/3250215/what-does-evergrandes-liquidation-order-mean-chinas-property-sector-why-market-cheering https://www.scmp.com/business/china-business/article/3250215...
  - sanxiyn 3y ago
    I am also trying to figure this out. I created a prediction market at Manifold whether a mainland Chinese court will recognize Hong Kong-appointed liquidator. Please make your bets and comments if you have insight! https://manifold.markets/SanghyeonSeo/will-hong-kongappointed-liquidator https://manifold.markets/SanghyeonSeo/will-hong-kongappointe...
kube-system 3y ago
> Does China just tell Evergrande's creditors "too bad"? In a broad sense, that's how bankruptcy works in the west too. The government has rules for who gets paid first, and everyone else is SOL.
- bozhark 3y ago
  Depends on what chapter is filled and approved
  - kube-system 3y ago
    Discharge can happen under both 7 and 11 which are the most common in the US. Chapter 7 is the equivalent of what is being discussed in this particular case.
- loeg 3y ago
  Yeah but in the west it is based on claim seniority rather than like, hose foreign creditors first.
  - faeriechangling 3y ago
    Which is why the west has been getting taken for a ride for years.
  - kube-system 3y ago
    No, in the US, claims are paid out based on the type of debt, outlined in the Absolute Priority Rule.
    - loeg 3y ago
      We are talking about the same concept but with different terminology. Not "No, ...".
      - kube-system 3y ago
        Maybe we are, but I'm not really sure 'seniority' is a great word to describe it. The term usually implies ranking due to duration. But it's really just a ranking prescribed by law. Often the shortest term lenders who are facilitating the bankruptcy process are first!
KaiserPro 3y ago
Liquidate doesn't mean destroy, it means finding assets of value, dividing them up if that gets better value, and selling them to pay off as much debt as possible. if Hengda is a going concern by it's self, then it might be sold off to a bunch of people to raise cash, or shares of it given to creditors to sell off them selves. but then there is the concept of senior and junior debtors, and the like.
xwolfi 3y ago
In HK we made a deal with China so that our judicial orders regarding Evergrande are considered in their jurisdiction. For now we're waiting to see.

chasd00 3y ago

> Does China just tell Evergrande's creditors "too bad"? that sounds inline with standard operating procedures.

miohtama 3y ago
It also means that foreign direct investments to China will dry up. However they’d likely dry up any case due to US vs. China trade war.
- thriftwy 3y ago
  That's the US, when they see money to be made in next quarter they go for it regardless. Not going to dry up.
- loeg 3y ago
  A little bit, maybe, but probably not entirely. The joke is that debt investors have no memory. For example, Argentina has defaulted many times in recent memory but was still able to market a 100-year bond in 2017 (which it has already defaulted on).
  - berserk1010 3y ago
    miohtama is actually correct. Foreign investors have snatched back nearly 90% of the money they put into Chinese stocks this year (2023) https://markets.businessinsider.com/news/stocks/china-economy-chinese-stock-market-foreign-investor-cash-flow-money-2023-12 https://markets.businessinsider.com/news/stocks/china-econom... Foreign investment in China turns negative for first time https://asia.nikkei.com/Economy/Foreign-investment-in-China-turns-negative-for-first-time https://asia.nikkei.com/Economy/Foreign-investment-in-China-...
    - hmm37 3y ago
      Equities are different from bonds. Bonds are being snapped up by a lot of foreign investors.
      - berserk1010 3y ago
        Chinese equities suffered a US$3.4 billion outflow from non-resident portfolios in the last month of 2023, while Chinese bonds only had a marginal US$189 million inflow for the same month, according to preliminary data from the Institute of International Finance (IIF) released on Thursday. https://www.scmp.com/economy/china-economy/article/3248078/china-hit-us34-billion-equities-outflow-wary-investors-eye-other-emerging-markets https://www.scmp.com/economy/china-economy/article/3248078/c... That said, once foreign bond buyers realize how much foreign creditors get back from the Evergrande debt (0 cents on the dollar), pretty sure foreign bond purchases will drop fast
        hmm37 3y ago
        There most be different data sets or different measurements, or categories of bonds being used. E.g. https://www.bloomberg.com/news/articles/2024-01-16/china-bond-inflow-extends-on-lucrative-swaps-pboc-easing-hope https://www.bloomberg.com/news/articles/2024-01-16/china-bon... "Global investors raised their holdings of Chinese bonds for a fourth straight month, capitalizing on a lucrative currency swap strategy to continue their gradual return to the world’s second-biggest debt market. They bought 181 billion yuan ($25 billion) of local yuan bonds on a net basis in the country’s main interbank market in December, taking their total holdings to the highest since April 2022, show Bloomberg calculations based on clearing house data." All of this is besides the point that foreigners are buying China's bonds, as @loeg has stated. They are essentially swapping out riskier equities for the safety of bonds which is by and large what is often taught to do when the economy isn't booming, only to switch back into equities when the downward cycle is over.
    - anon-sre-srm 3y ago
      It's curious why any FDI happened, except small amounts of speculative investment. Property rights in China have always been highly precarious. It's a huge economy but the game is arbitrary and rigged.
  - gottorf 3y ago
    Wow, I had no idea. There are very few entities in the world whose 100-year bonds I would entertain (maybe Switzerland?), and Argentina would certainly be near the bottom. I can't believe they sold two and three-quarter billion dollars'[0] worth! [0]: https://www.cnbc.com/2017/06/20/argentina-sees-strong-demand-for-surprise-100-year-bond.html https://www.cnbc.com/2017/06/20/argentina-sees-strong-demand...
    - asah 3y ago
      The sell size has all sorts of tricks, including bundling these bonds with better looking ones. 2.75B is 0.002% of the $133T worldwide bond market.
  - nradov 3y ago
    This is more a sign that the bond rating process remains broken despite some superficial reforms after the 2008 financial crisis. The major rating agencies gave that Argentine bond a B rating which allows many institutional investors to buy, despite the reality that it's obviously garbage. Then when the next default hits the fund managers can blame their losses on the rating agencies. Nothing changes.
    - photonbeam 3y ago
      Can anyone start a ratings agency? Or is it special somehow?
      - nradov 3y ago
        Rating agencies have to comply with the SEC registration rules. There are currently 10, but only 3 dominate the market for large bond issues. In theory anyone could start a new one but in practice it would be difficult. The most recent company to obtain registration was Demotech which did it in 2022 but the company had been around since 1985. https://www.sec.gov/about/divisions-offices/office-credit-ratings/oversight-nrsros-small-entity-compliance-guide https://www.sec.gov/about/divisions-offices/office-credit-ra...
    - fspeech 3y ago
      In what sense did the rating agencies do a terrible job here? First B is a junk rating, not investment grade. Secondly if you get paid 7.9% for six years plus a market price of 30 cents on the dollar you get back more than 75 cents on the dollar, which would have been comparable to the performance of US 30 year Treasury issued around the same time. People do realize that if the principal is not paid back then whether there is one year or 90 years left on the bond term is irrelevant, right? In other words if you suspect the default risk is high you might as well buy the 100 year instead of the 10 year to get compensated by the higher premium.
      - harpiaharpyja 3y ago
        Why would anyone put in a dollar to get 75 cents back?
  - enaaem 3y ago
    Creditors lose money all the time. It’s priced in the interest rate. They can still win in the long run with a diverse large portfolio.

colechristensen 3y ago

From CNN: >the implications for the company’s vast business in mainland China are unclear. >Hong Kong and the mainland city of Shenzhen — where Evergrande is based — have a mutual insolvency recognition agreement, but it’s “effectively inoperative” and courts in the city are “extremely unlikely” to recognize the offshore liquidator, Silvers said. What we have here is a complex set of semi-international legal issues on the other side of the world. I don't trust HN commentary on the subject. It seems very undecided for now and will be a sticky situation for China, Hong Kong, and foreign investors.

miohtama 3y ago
China is not a rule of law country. It really does not matter what laws or treaties say, as Xi can just snap fingers and the law will be different.
Animats 3y ago
South China Morning Post is trying to figure it out.[1] "A Hong Kong court on January 29 ordered the liquidation of China’s property giant Evergrande, but the firm said it would continue to operate in a case that has become a symbol of the nation’s deepening economic woes." "Given that most of the company’s assets are onshore, we do not think that offshore bondholders would receive substantial recovery proceeds from the liquidation. In addition, it is unclear whether the Hong Kong court’s liquidation order could be enforced onshore; there has been some mutual recognition of bankruptcy proceedings between Hong Kong and mainland courts, but the enforcement is difficult in practice." Reads like their reporter called up the usual suspects for comments. There's nothing at all about Evergrande in China Daily, which means there's no official position yet. [1] https://www.scmp.com/business/china-business/article/3250215/what-does-evergrandes-liquidation-order-mean-chinas-property-sector-why-market-cheering https://www.scmp.com/business/china-business/article/3250215...
- sanxiyn 3y ago
  I am also trying to figure this out. I created a prediction market at Manifold whether a mainland Chinese court will recognize Hong Kong-appointed liquidator. Please make your bets and comments if you have insight! https://manifold.markets/SanghyeonSeo/will-hong-kongappointed-liquidator https://manifold.markets/SanghyeonSeo/will-hong-kongappointe...

kube-system 3y ago

> Does China just tell Evergrande's creditors "too bad"? In a broad sense, that's how bankruptcy works in the west too. The government has rules for who gets paid first, and everyone else is SOL.

bozhark 3y ago
Depends on what chapter is filled and approved
- kube-system 3y ago
  Discharge can happen under both 7 and 11 which are the most common in the US. Chapter 7 is the equivalent of what is being discussed in this particular case.
loeg 3y ago
Yeah but in the west it is based on claim seniority rather than like, hose foreign creditors first.
- faeriechangling 3y ago
  Which is why the west has been getting taken for a ride for years.
- kube-system 3y ago
  No, in the US, claims are paid out based on the type of debt, outlined in the Absolute Priority Rule.
  - loeg 3y ago
    We are talking about the same concept but with different terminology. Not "No, ...".
    - kube-system 3y ago
      Maybe we are, but I'm not really sure 'seniority' is a great word to describe it. The term usually implies ranking due to duration. But it's really just a ranking prescribed by law. Often the shortest term lenders who are facilitating the bankruptcy process are first!

KaiserPro 3y ago

Liquidate doesn't mean destroy, it means finding assets of value, dividing them up if that gets better value, and selling them to pay off as much debt as possible. if Hengda is a going concern by it's self, then it might be sold off to a bunch of people to raise cash, or shares of it given to creditors to sell off them selves. but then there is the concept of senior and junior debtors, and the like.

xwolfi 3y ago

In HK we made a deal with China so that our judicial orders regarding Evergrande are considered in their jurisdiction. For now we're waiting to see.