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Concerned debt funds and individual investors are leaning towards bonds issued by China’s property developer Evergrand, claiming that Beijing will be forced to rescue the country’s most indebted company.
The rush to buy evergreen debt comes as many pension funds, insurers and other conservative institutional investors have distanced themselves from the group amid fears of a transition to China’s property market and global financial system.
“Evergrand is an incredibly interesting, but extremely complex situation that will probably last for several years,” said Jason Friedman, a partner at Masathon Asset Management, one of the funds to create a position at Evergrand.
US funds Saba Capital Management, Redwood Capital Management, Silver Point Capital and Contrarian Capital Management have also bought EverGrand bonds in recent weeks.
Uncertainty over Evergrand’s future has deepened since the Shenzhen-based group failed to meet the 83.5 million interest payment deadline on a dollar-denominated bond last Friday, which began a 30-day grace period before the official default. Evergrande has not made any announcements about the payment or paid another coupon of about ৫ 5 million on Wednesday.
According to Bloomberg data, while the attention of larger investors has shifted to Evergrand’s other growing obligations, trading on the bond coupon last week has risen to more than 12 124 million on Wednesday.
Louis Tess, managing director of Hong Kong-based brokerage Wealthy Securities, said the “heavy, heavy business” of Evergrand’s dollar bonds in recent sessions was partly driven by debt-ridden investors bought in the hope that Beijing would lead a restructuring rather than allow the company. Broke down.
“They are confident that whatever happens at Evergrande as a whole, there will be a solution,” Tse said.
Recovering damage from Evergrande will be a difficult task. The company said Wednesday it had raised বিল 1.5 billion by selling a 20 percent stake in a Chinese regional bank but less than 1 percent of its ০০ 200 billion liability.
Traders said many long-term bondholders have already moved out of Evergrand before last week’s payment deadline, as investors cycled to take their place-a feeding strategy below.
The Hong Kong-based bond investor said, “These are mostly debt rented sharks trying to make money fast.”
At EverGrand, one of the largest recipients of the Asian corporate dollar bond market, the outstanding balance of dollar-denominated bonds is $ 20 billion. Mature bonds in March 2022 traded at about 26 0.26 per dollar this week.
Another investor in the Hong Kong-based family office said he bought the first evergrand debt last week in the hope that the Chinese government would eventually plan the country’s largest corporate restructuring.
The People’s Bank of China, the central bank, this week called on the country’s financial institutions to “sustainably and healthily develop” the real estate market and protect the “legitimate rights and interests” of homeowners.
“I’m betting to settle this thing out of court, like through a low-cost tender offer, debt-to-equity. [swap], Or whatever, ”the investor said.
He bought a note issued by Hengda Real Estate, Evergrand’s chief coastal assistant, while it was trading near 0. 0.16 in dollars. He hoped to almost double his money next month.
“This is not a fundamental analysis but most default Chinese bonds trade above this level,” he said. “I’m noticing 30-ish.”
Investors cited dollar bonds issued by other Chinese corporates, which ranged between 20 0.20-0.30 per dollar, despite defaults and in some cases despite state-led restructuring efforts. These include Beijing-backed technology company Tsinghua Unigroup and the founding group of Peking University, as well as property developer China Fortune Land Development.
Evergrand’s next debt repayment deadline is Oct. 11, when the developer is talking about making a ড 150 million coupon payment on a three-dollar bond.
U.S. Credit Fund Saba, Redwood, Silver Point and Contrarian declined to comment.
Additional reports from Wang Xueqiao of Shanghai and Thomas Hale of Hong Kong