This is only the Hong Kong business.
Which is why it hasn't had the impact you would expect.
Which is why it hasn't had the impact you would expect.
https://www.cnn.com/2024/01/29/business/evergrande-ordered-t...
> Hong Kong and the mainland city of Shenzhen — where Evergrande is based — have a mutual insolvency recognition agreement, but it’s “effectively inoperative”
But China basically ignores HK in this.
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"?
that sounds inline with standard operating procedures.
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-econom...
Foreign investment in China turns negative for first time
https://asia.nikkei.com/Economy/Foreign-investment-in-China-...
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
"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.
[0]: https://www.cnbc.com/2017/06/20/argentina-sees-strong-demand...
2.75B is 0.002% of the $133T worldwide bond market.
https://www.sec.gov/about/divisions-offices/office-credit-ra...
>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.
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...
https://manifold.markets/SanghyeonSeo/will-hong-kongappointe...
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.
The last one my company dealt with, we got about 10% of our exposure back. So we got £1,000 instead of the £10,000 that was owed. We then got to write that off as a loss.
This monster is in a different league to anything I've dealt with but the principles here would largely be the same but with less transparency and more money wandering off for a chat with shady characters. I suspect that the rules I might follow may be joined by some rather more complicated ones, when the sums involved are large enough and the corporate structures are complicated enough.
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.
It's in no way a given that a subsidiary is insolvent just because the parent is.
This isn't unusual. E.g. when Commodore went bankrupt several subsidiaries continued to operate as long as they had stock, and the UK subsidiary even tried to organize a buyout of its parent.
In general, sure, but in this case, no. The subsidiary has, at most, $260B of assets against $275B of debt. It's insolvent.
E.g. in particular in situations where there is any way to justify that they will not become cash flow insolvent. If they can somehow make a reasonable case that their assets will appreciate in value faster than their debts will come due. Thought it might put additional constraints on their spending.
Note that I'm not arguing that they're a going concern - I have no idea, but given they're presumably dependent on Chinese property prices for their assets valuation it does sound dicey - just how it might be possible for them to justify not winding up the subsidiary.
This is freeing the Chinese business of its obligations of $25B in foreign debt.
Presumably that makes for a better business.
Who knows. Evergrande could easily be worth less than -$25B. No one wants to buy a business worth negative money. But it's definitely worth less negative money now.
If you borrow money from a bank and that bank goes bust, you still owe the full balance based on the initially agreed repayment schedule, it is just that your loan is now an asset contributing to the recovery of the bank's own creditors.
Granted, it's very weird to have the parent die. Normally you have subsidiaries to isolate risk, and even if the problem is the parent I imagine you'd cool the books to shift the debt to a sarificial limited liability subsidiary that can go bankrupt so the business can continue.
> HK is sort of what NY is to the US. It is a peripheral region with some minor degree of autonomy but because it just so happens to house the Chinese version of Wall Street this means it’s judiciary is a little bit special when it comes to dealing with insolvency and other corporate issues.
This means that it very likely means liquidation in China as well.
Though it's kinda funny to imagine the Dutch held onto NYC until the 1990s after which there was some sort of unification process.
That’s a good 300 years before 1990 :)
If you want some actual information I recommend "Cross-Border Insolvency between Chinese Mainland and Hong Kong: The Past, the Present, and the Future" (2022). https://ssrn.com/abstract=4100844