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Evergrande’s spell brings no joy to the man behind his big shorts

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In March 2012, Andrew Left, a US-based short seller, received a mysterious piece of luggage with no return address. Internally, a 68-page document made an explosive statement to a Chinese real estate developer who was then little known outside the domestic market.

Left’s subsequent report on Hong Kong-listed real estate group Evergrande claimed it was “bankruptcy” and “serious liquidity problem” and amounted to $ 1. $ 6 million after the share price fell. He made a profit, but a long procedure was filed. Due to the territorial market regulators, it cost much more.

“I dug it pretty deep,” says Left, who has disseminated “false or misleading information” and turned out to have been banned from the region’s financial markets. “When we went over $ 1 million, we stopped counting the bills.”

This week, a Chinese company that began to embody the massive debt behind it The greatest urban transformation in history I finally got caught in a crisis that skeptics had repeatedly predicted over the past decade.

Evergrande’s name on Monday is due to the rapidly expanding liquidity problem in China since July. Thursday Interest Payment Deadline One of $ 20 billion in US dollar-denominated bonds. As of Friday, no payment had yet been made.

However, this is the company’s total debt of $ 300 billion, mainly from the purchase of land at the national level. Building residential apartments in hundreds of cities in China They sold them before they were finished to repeat the process, prompting comparison with the systematic 2008 auction.

The Fate of a Business Usually Expected to Need The Biggest Restructuring in Chinese History Whatever happens with interest payments, this week has emerged as a major test for the real estate industry. Fixed model of national economic growth But now, after the change in government policy, there is pressure to reduce leverage.

Millionaire playing poker

Evergrande was started by Hui Ka Yan in 1996. Previously worked in the steel industry, the year when less than a third of the Chinese population lived in cities. When the company went public in Hong Kong in 2009 after a previous failed attempt, its stake jumped 34%. In 2017, when China’s urbanization rate rose to 58%, Hui was the richest man in the country with $ 45 billion in wealth and was known to play poker with a group of billionaires from Hong Kong. . He came to be able.

Like many of China’s largest conglomerates, the company has raised capital in the Hong Kong stock and bond markets. The arbiter who sanctioned the left pointed out that in 2012, “the majority of Hong Kong market analysts were optimistic about the outlook for Evergrande.” Like last month, nearly half of analysts in Hong Kong still have a stock rating, which fell 84%. Year.

The pace of growth in cross-border debt and land reserves, which was sufficient to accommodate millions of people last year, was consistently frowned upon. However, many believed the project was large and important enough to count on Beijing’s support.

A managing director of private equity in Hong Kong said he was investing in a real estate developer in China. A significant portion of the Asian $ 400 billion high yield bond market – It depends on the “core belief” that the central or local government never allows “bombing”.

“If you think the government will always intervene on key issues, you are at greater risk,” said one person who has banned his own team from investing in Evergrande. “If you are a fixed income fund manager and fight for all the basis points of your bonus, it will be rewarded every year. “

This broader belief was shaken by the announcement of the government’s “three red lines” rule in the summer of 2020. Concerns about the asset bubble.

“I think one of the big things that people underestimate is the significant paradigm shift the government has brought about in the real estate industry,” said Newberger Berman, co-lead portfolio manager of the team at emerging market corporate debt. A Nish Popat said. The company noted widespread opinions outside of China that it was too big to fail. “When we spoke to the Shanghai team, they didn’t believe it was true,” he said.

Some international funding I was still buying a huge debt In July, Neuberger Berman resigned from his post because he felt “uncomfortable”. of Shaoyang, Hebei Construction canceled in two of these projects. The two decisions were quickly reversed, small for the size of the company, but painful.

Line chart of the share price (HK $) showing the fall in the share price of Evergrande in China

Evergrande Warning of default risk In August, days after abnormal public accusations from Beijing, it ordered debt reductions and blamed the effects of “negative reports” on its liquidity. Under pressure from the three red lines, the company reduced its debt from RMB 717 billion at the end of last year to RMB 572.0 billion in June. However, during the same period, its debt reached RMB 1.97 trillion, ten times the level of 2012 at the time.

News of contractor proceedings over unpaid invoices began to appear, and the company A record number of Chinese court proceedings However, I still made a net profit in the first half of this year. Real estate sales were expected to halve from June to August, with sales typically worsening in September.

The global market hung on to Evergrande’s debt this week, but its assets have long come under scrutiny due to the focus on unused housing stock resulting from China’s construction boom.

Nigel Stevenson, analyst at GMT Research, published a report on the company in 2016 with a price target of $ 0 per share after visiting 40 projects in 16 cities. He said the company’s balance sheet contained around $ 7.5 billion in parking space for around 400,000 cars, which was roughly the same as the overall equity base, and criticized the quality of the other assets.

“These assets have yet to be funded, apparently more than 10% and not sustainable in the long term,” he said. “Things have finally caught up with them. “

International fund managers have already profited from high yields on Evergrande’s debt at a time when swathes of the global bond market were trading at negative rates due to lax Western monetary policy.

The bonds maturing Thursday were issued at an 8.25% coupon in 2017, and this week their price fell to 24 cents on the dollar. In a note to clients last week, UBS, which held $ 300 million in Evergrande bonds on various filing dates from April to July, traded “below the typical historic rally.” He said he was doing it.

8.75% coupon showing fall of China Evergrande group, 2025 line chart (by%)

In restructuring expectations, some offshore investors have carefully monitored the assets of companies outside of China that have accumulated as they grow beyond their assets, including shares of companies in China. electric vehicles listed in Hong Kong that have not yet sold their cars. I am.

A group of international investors have engaged the law firm Kirkland & Ellis and the investment bank Moelis & Company to advise them on a possible restructuring.

“Evergrande’s chances of prioritizing offshore bondholders are declining rapidly and are very low,” said Kobre & Kim, an American company that talks to many large activist US funds holding positions in Evergrande bonds. Said John Han, an attorney for the company. .. “The Chinese government will prioritize individual investors, home buyers and domestic banks over troubled Western bond funds. “

Expecting defaults, S&P does not expect direct government involvement, but expects Beijing to seek “orderly restructuring.” Within mainland China, the future of the Evergrande group will be a very sensitive process and a political test for President Xi Jinping, given the involvement of the general public who are already paying for the apartment. The company has 778 projects in 223 cities, and last week individual investors landed at their Shenzhen headquarters to demand repayment of their funds.

The direct ripple effect in the international market is limited beyond Asian high yield bonds. However, notable failures can hurt confidence in the entire real estate industry, where global commodity markets and local government finances are heavily dependent. Land sales fell 90% year-on-year in early September, but new home sales also fell. However, new home prices in 70 major cities also edged up year-over-year in August.

Andrew Left said he had never been to China and relied on the internet and gambled on the business, but he didn’t feel “right” about this week’s news.

“I’ve never been in a situation where people have blessed you and you haven’t taken anything away from it,” he said. “It was a very large part [my] For a long time, and now, it has been part of the history of finance. “

The left’s five-year ban expires next month, but he still has a question: “Are the courts going to prosecute all the analysts who have set a target of $ 40 for this?”

Additional report by Edward White in Seoul and Tom Mitchell in Singapore

Evergrande’s spell brings no joy to the man behind his big shorts Source link Evergrande’s spell brings no joy to the man behind his big shorts

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India surpasses 1 billion vaccines after stuttering start to campaign

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India received its 1 billionth vaccine against Covid on Thursday. It is a milestone that Prime Minister Narendra Modi’s government hopes will help put aside the tragic memories of this year’s devastating second wave.

About 22% of Indians are fully vaccinated and 53% have been vaccinated at least once. Highly exposed Infected with a virus, infection and disease have spread.

“History of the Indian script” Modi Tweeter.. “We are witnessing the victory of Indian science, business and the collective spirit of 1.3 billion Indians.”

India reports an average of around 15,400 newly confirmed infections per day, starting with around 400,000 in early May. Wave 2 Overflowing with hospitals, many people could not get medical attention.

Fear that India will be affected Third wave Since March 2020, many primary school children have been banned and are gradually returning to class.

“It’s a great achievement,” said Brian Wahl, epidemiologist at the Johns Hopkins Bloomberg School of Public Health, based in New Delhi. “Given the current high levels of exposure and vaccination, the possibility of a third wave, equal to or greater than the second wave, is minimal in my mind.”

Members of the ruling Bharatiya Janata party called India’s vaccine rollout a tribute to Modi’s leadership, which has surpassed all other democracies in the world. Under fire at the start of the year for its management of the pandemic.

Shashi Tharoor, top leader of the opposition parliamentary party, called the step “a matter of pride for all Indians” but said the government’s mistakes could not be ruled out.

“After serious mismanagement of the second wave of Covid and the failure of the vaccination order that could have prevented it, the government has now partially redeemed itself,” he said. Tweeter.. “He is responsible for the previous failures. “

The vaccine rollout in India, despite being home to the Serum Institute of India, one of the world’s leading jab makers, began to stagnate in January, hampered by public reluctance and limited supply. However, as highly infectious delta mutants have spread, the demand for vaccination has increased.

In response to public anger, the government restricted vaccine exports and left behind a Covax program backed by the World Health Organization, which ordered the Serum Institute to provide vaccines to other countries in development. It is a larch.

“It was a necessary decision,” said Lina Mengany, head of the access campaign for Doctors Without Borders in South Asia. “There was a delta wave.”

But the ban damaged India’s reputation as a reliable supplier It sparked discussions about the need to diversify supply chains to reduce risk. “India’s role as a pharmacy in developing countries has long-term implications,” says Mengany.

Kobi Shield, Serum Institute The Oxford / AstraZeneca version of the vaccine accounts for approximately 88 percent of all vaccines administered in India. Covacin, a single vaccine not approved by the WHO, accounts for 11 percent of the total. A small number of Russian Sputnik vaccines were also administered. Vaccination in India is highly dependent on individuals and private employers, Jab ..

India has not started vaccinating people under the age of 18 who make up 40% of the population. The moving average of daily 7-day immunizations on October 18 fell from 8.2 million 10 days ago, demand has also declined, and many Indians are receiving the second vaccine needed for full protection. I’m afraid I can’t do it.

“When the waves hit people were eager to get the vaccine, and now that the waves have receded people have just resumed their lives and forgot that they also had to take a second dose. “Menghaney said.

India has reported 34 million Covid infections and more than 450,000 Covid-related deaths since the start of the pandemic. However, independent epidemiologists say the actual spread of the virus and the actual number of deaths far exceed official statistics.

India Surpasses 1 Billion Vaccines After Start of Stuttering Campaign Source Link India Surpasses 1 Billion Vaccines After Start of Stuttering Campaign

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Pros and cons of playing casino slots

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The online gambling market currently offers hundreds of online casinos where you can find countless slot machine games. This means that you will have the opportunity to choose from some of the best suppliers in the world. Therefore, playing slots online should have many advantages. But are there also downsides? We’re going to go over the pros and cons of playing slots online, so read on for more details.

Regulated market

If you know where to look, you’ll have no problem finding a perfectly regulated market to play some of the best casino slots. Once you start researching the best online gaming platforms, you will find that top search results present the best options. This is because these sites have undergone all the necessary checks, thus ranking high and creating a regulated and secure online gambling environment.

To make sure you’re on the right track, you can check the site’s seal of approval yourself. Just search for the name of the regulatory jurisdiction, like United Kingdom Gambling Commission, Malta Gaming Authority, Gibraltar, Curaçao, etc.

Easy to learn

Even if you’ve never had the chance to play casino games before, slots shouldn’t be a problem. These games are incredibly easy to learn, which means you don’t need any prior knowledge to start playing.

Plus, they’re purely luck-based, so you won’t have to rely on strategy to win. All you have to do is spin the reels and hope for the best.

So, once you get familiar with ICE36 Slots, you will notice how easy these games are to master. But remember to be smart with your options and not to put all of your eggs in one basket.

Economic

Slot machines are a group of casino games that do not require high investments, making them suitable for all budgets. Players can make deposits as low as a few dollars or up to a few thousand – it all depends on their budget.

With this in mind, slot machines also offer a wide range of stakes. High players can make high bets, while newcomers can even place 10 cents. This is a great advantage for both regular and occasional casino players. For example, starting with smaller bets allows players to get into the game before investing a lot of money. The range of the game leaves enough room for the player to place further bets or try out new casino games, which creates an entertaining gaming environment.

Bonuses and rewards

It’s no surprise that most online casinos regularly offer bonuses and rewards to new and existing users. It’s an effective way to attract players and retain regulars, which you won’t find in land-based casinos. You can read more about it here.

Welcome bonuses are the most common form of casino bonus, especially for unregistered users. By signing up, most players receive a strong incentive to keep playing. The majority of these bonuses are related to slot machine games as they are the most popular category in online casinos. So, if you are determined to take advantage of any promotion, slots are a great place to start.

Pro tip: Always read the terms and conditions before accepting a bonus. Most wagering requirements state that slots count 100% to meet rolling requirements, but it won’t hurt to see for yourself.

Quick to play

While playing slots doesn’t have many drawbacks, we have to stress how quickly slot machine spins usually end. As a result, most players won’t spend hours spinning the reels on their favorite slot machine – these games are usually over within minutes. Therefore, if playing for hours is more your thing, slot machines are not the right choice for you.

Lack of personal interaction

While some players can make friends by playing slots online, it will not be the same as playing poker online. It might not be a big factor for everyone, but it’s worth mentioning as some gamers might seek out this social factor with online gaming. Keep this in mind once you start your online gambling adventure.

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Strong profits outweigh a slower economy

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This article is an on-site version of the Unhedged newsletter. subscribe here Send the newsletter directly to your inbox on weekdays

Welcome to the house. The Bitcoin ETF review on Wednesday made me terribly disappointed with the relatively low level of online abuse. Are crypto fans sweeter in old age? Or are they just rich and over the top now? In any case, Unhedged is now working on more important subjects: the economy and stocks. Please send me the email: robert.armstrong@ft.com

Earnings call songs, actions dance

There are things happening now:

  • Inflation expectations are really starting to shift. If you’re willing to believe what the bond market is telling us, inflation is in place. The expected 10-year breakeven inflation rate (i.e. the nominal yield on 10-year bonds minus the yield of inflation-protected peers) is 2.6%, the highest in eight years . The five-year breakeven point is 2.8%, the highest in 16 years.

  • Oil is above $ 80 and is putting more pressure on it. Traditionally, when oil went bankrupt, the stock market didn’t like it (see 1970, 2000, 2008, 2018).

  • Growth in the United States continues to slow. This is my measure to a favorite chart and the Atlanta Federation’s GDP estimate for the quarter. Look at the changes in estimates (data-driven, non-discretionary) since September. In short: disease.

  • Federal Reserve Beige Book Wednesday’s comment reads this (a boring word that I italicized):

Economic activity increased in Medium to medium Rate based on majority of Federal Reserve Bank districts. But some neighborhoods Growth slows down This period is limited by supply chain disruptions, labor shortages and uncertainty surrounding the delta variant of Covid-19. .. ..

Growth in non-manufacturing activities Mild to moderate In most districts. The loan request was typically reported as: Flat to moderate this period. .. ..

Most districts reported Significant price increase, Supported by the growing demand for raw materials and raw materials. The increase in input costs was widespread Industry-wide due to product shortages due to supply chain bottlenecks. Price pressure Increased transport and labor constraints Not just the shortage of products.

  • Meanwhile, in China, another great world power, gross domestic product rose 0.2% between the second and third quarters (data via Bloomberg).

Well, none of this is the end time. Many of these could be delta / supply bottleneck variant phenomena that will pass next year. Of course, that’s what most people think, and they have a good reason to think about it. But the simple fact is that inflation has recently increased in the United States and around the world, slowing growth. This is what is happening now, and whatever we think or expect is what will happen next.

But what does the American stock market say? He says none of this matters. The dip has been purchased. The S&P 500 has returned to record levels and the Nasdaq is approaching that record.

Plus, it might make sense. When you buy stocks, you are not buying the global economy. You buy the income from the business. Plus, judging by the small number of sample third quarter earnings reports we’ve seen so far, corporate profitability has been strong.

The largest reporting US business is a bank. Their results were a little too dependent on investment banks for my liking, but I wonder what would happen to the credit card industry if everyone kept paying their balances wisely, but they talk about spending. I was encouraging.

Credit and debit card spending rose 21% at Bank of America, JP Morgan’s by 26%, and Citigroup’s by 20%. Whatever else is going on in the global economy, do American consumers feel as though they are blushing (why do so many other consumers think they can?) Quit their jobs)?

Nestlé is the perfect example of a more profitable business. It’s a bit odd to mention in this context as it’s not an American company, but the results are still very informative. It is essentially sold everywhere, we have employees everywhere, and we source our raw materials from everywhere. And the third quarter results were surprisingly good. In the first nine months of this year, we refined our sales forecast for the full year, reporting a 6% increase in global sales (and roughly the same in North America ). With a 2% price increase in the third quarter, the operating profit outlook remains the same as in recent years, despite higher input and transport costs.

Nestlé is arguably the most managed consumer products company in the world. We are ruthless about changing our product portfolio, so we are only focused on growth, earning good returns and protecting prices. This is a graph of operating income and the ratio of free cash to sales since 1994. It surprises me:

Therefore, not all companies can manage like Nestlé during this period. But it shows what a globally competitive business can do. And Nestlé was not alone. For example, Procter & Gamble reported that organic sales growth was a bit modest, but it was also able to increase prices.

Of course, there are still many profit seasons, and we can hear opinions from more than the big banks and consumer goods companies around the world. However, worrying cuts to pre-earnings forecasts are particularly rare. Among large companies, Nike Struggle The decline in sales prospects due to the Asian supply chain has so far looked outrageous.

SMEs that do not have the strength of Nestlé may find it even more difficult to deal with supply bottlenecks, especially some retailers (I think). One of the most interesting trends to note is that there is a divergence in results between large and small companies. And because of its great reputation, declining businesses can expect the market to hit them hard.

But large companies that can avoid supply chain disruptions and have pricing power can get through these tough economic times if they don’t last long. And given that there are no attractive options for investors, this in turn may be enough to support US stock prices at the current sky-high levels.

A good read

There is a lot of speculation about how the end of a central bank’s bond purchase may be a nuisance, but the central bank is subtly trying to deal with it. Well, the first major developed country to try it seems to be the UK. This summary My colleague Tommy Stubbington’s rather nervous situation is worth reading if you haven’t heard of it.

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