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China developer Yango offers bond swap, backstopped by its chief, to avert default

By Andrew Galbraith

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China developer Yango offers bond swap, backstopped by its chief, to avert default
© Reuters. FILE PHOTO: A man rides a bicycle past a Yango Group real estate project under construction in Yanan New Zone, Shaanxi province, China January 4, 2019. REUTERS/Yawen Chen

By Andrew Galbraith

SHANGHAI (Reuters) -Chinese developer Yango Group offered on Monday to exchange some of its U.S. dollar bonds for new notes personally guaranteed by its chairman as it struggles to free up cash and avoid defaulting on upcoming debt payments.

Yango’s liquidity crunch comes against the backdrop of a crisis at China Evergrande Group, which has stoked concern among investors globally about the country’s deeply indebted, $5 trillion property sector and tightened funding access for other developers.

Yango is offering $25 in cash and $1,000 in new notes for each $1,000 of existing bonds exchanged, it said in a Hong Kong bourse filing. The exchange offer applies to its U.S. dollar notes due in February 2023, January 2022 and March 2022, which have an outstanding face value of $747 million.

The new bonds are personally guaranteed by Lin Tengjiao, Yango’s founder and chairman, the filing said. The Hurun Global Real Estate Rich List of March 2020 had estimated Lin’s personal fortune at $2.4 billion.

Yango said it is also seeking the support of investors to change the terms of its five other outstanding dollar bonds.

It said the offer was part of “overall efforts to improve our liquidity, preserve options to stabilize our operations as a going concern, and avoid imminent payment defaults and potential holistic restructurings of our debts and business operations.”

Government policy tightening, credit events and deteriorating consumer sentiment had cut off refinancing avenues for property firms “and put enormous pressure on our short-term liquidity, Yango said.

SHARES, BONDS SLUMP

The announcement follows a report from financial information provider Redd on Friday that Yango had asked holders of its asset-backed securities (ABS) to refrain from asking for repayment for a year over concerns it would struggle to pay this month.

Yango’s shares in Shenzhen plunged 7.5% on Monday and are down by nearly a quarter over the past week. The CSI300 real-estate sub-index slipped 1.6% on Monday against a 0.4% drop in the blue-chip index.

In the onshore bond market, the Shenzhen Stock Exchange halted trading of Yango’s April and August 2024 yuan bonds after they fell more than 30% on the day.

“The ABS are maturing on Nov. 8, so it’s a bit dangerous. The onshore market is anxious,” said a Beijing-based portfolio manager who asked not to be named, as he was not authorised to speak with media.

In international debt markets, Yango’s 7.5% February 2025 dollar bond fell more than 20% to a discount of about 85% of its face value, according to Duration Finance. Other Chinese developers’ bonds also slumped, weighing on an Asian high-yield bond ETF, which fell more than 1%.

Yango has eight outstanding U.S. dollar bonds worth a total $2.24 billion and 14 outstanding yuan-denominated bonds worth 13.1 billion yuan, according to Refinitiv data. Holders of the February 2023 notes, worth a total of $247 million, have the option to demand early repayment on Nov. 12.

Evergrande narrowly avoided a catastrophic default for the second time in a week on Friday, making a last-minute payment on an overdue dollar bond coupon just before its grace period expired.

Its woes have brought collateral damage, with some other Chinese developers forced into formal default on their dollar bonds last month.

But one developer, Xinyuan Real Estate Co, avoided a default on a maturing dollar bond in October by reaching an agreement with bondholders to exchange maturing notes for new bonds and cash.

Stock Markets

Morgan Stanley: bear market rally to continue

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One of Wall Street’s best-known bears, Michael Wilson, thinks the S&P 500 will rise another 7% before turning down, so the bear market rally will continue for now, writes Market Watch.

After the Dow Jones, S&P 500 and Nasdaq Composite joined their strongest weekly gains since at least May last Friday, Wilson, who is chief strategist and head of U.S. equity markets at Morgan Stanley (NYSE:MS), told clients that there could be another 5% to 7% before the downward trajectory of U.S. stocks resumes during the latest bear market recovery.

Wilson has held a bearish view of the stock market for about 2 years and correctly predicted a sell-off this year.

Wilson explained in a research note sent out to clients on Monday that a pullback in the 38-50% drop in the stock market this year “would not seem like something unnatural, not consistent with the previous bear market rally.”

While growth concerns have triggered a sell-off in commodities and lowered inflation expectations, the fact that the U.S. economy is already slowing and heading toward recession means that any market rally is likely to be short-lived, and U.S. stocks are likely to eventually fall.

Wilson mentioned in the note that the bear market is not over yet, although it may appear otherwise in the next few weeks as the market takes the rate cut as a sign that the Fed can still manage a “soft landing” and prevent a meaningful revision to earnings forecasts.

U.S. stocks rose last week as investors now hope the slowing economy and falling commodity prices may inspire the Fed to raise interest rates less sharply. Federal funds futures, a derivative used by investors to bet on the pace of the Fed’s monetary policy changes, estimate with a high probability that the Fed will be forced to start cutting interest rates again as soon as next summer.

They also consider the lower peak in the federal funds rate: it will peak around 3.5% at the end of 2022 instead of 3.75% just a couple of weeks ago. Wilson also pointed out the drop in Treasury yields: the 10-year Treasury bond yield went from 3.230% to a low of 3.07% on Friday before rebonding again on Monday.

Wilson expects the S&P 500 index to fall to around 3,400 points if the U.S. Federal Reserve manages to get a “soft landing” for the economy — which Fed Chairman Jerome Powell said last week would be “a very difficult thing to do.”

Wilson expects that if the U.S. economy plunges into recession, the S&P 500 index will fall to around 3,000 points. In any case, Wilson believes that U.S. stocks are still highly valued because the risk premium — that is, the measure of compensation that investors receive for the extra risk of owning stocks instead of bonds — remains about 300 basis points higher than the 10-year Treasury bond yield, which is considered a “risk-free rate.” 



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Stock Markets

Easing chip shortages to help Volkswagen in H2 – CEO

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© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York City, U.S., April 13, 2022. REUTERS/Brendan McDermid/File Photo

BERLIN (Reuters) – Volkswagen (ETR:VOWG_p) sees a strong second half of 2022 and expects progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs, the carmaker’s CEO said on Tuesday.

“We are earning more than ever,” Chief Executive Herbert Diess said at a works meeting, adding Volkswagen is ramping up electric vehicle volumes in its biggest markets in Germany and China thanks to easing semiconductor shortages.

This should allow the carmaker to narrow the Volkswagen-Tesla gap this year and meet its goal of becoming market leader by 2025 if it seizes the moment while the U.S. electric car maker burns cash on large investments, the CEO said.

“Elon (Musk) has to ramp up two highly complex factories in Austin and Gruenheide at the same time – as well as expand production in Shanghai. That’s going to take strength out of him,” Diess said.

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Stock Markets

Reliance Chairman Mukesh Ambani steps down as director of telecom arm

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© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas

BENGALURU (Reuters) – Reliance Industries Chairman Mukesh Ambani has stepped down as director of Reliance Jio Infocomm Ltd, the conglomerate’s telecom arm said on Tuesday.

Reliance Jio said https://refini.tv/3Nrs773 it has appointed Mukesh’s son and non-executive director Akash Ambani as the chairman of its board. Akash has been involved with the telecom unit since its launch in late 2016, where he started as a director.

India’s telecoms sector had been upended after the entry of Jio, which triggered a price war that forced some rivals out of the market and turned profits into losses.

Jio, which started out offering mobile teleservices, has been aggressively investing in services like internet broadband and forging ties with handset makers to launch low-cost smartphones and providing 5G services.

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