WEBVTT - Loan Defaults Outpace Bonds; Country Garden Woes

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<v Speaker 1>Hello, and welcome to The Credit Edge, a weekly markets podcast.

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<v Speaker 1>My name is Olivia Raimonde and I'm a corporate finance

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<v Speaker 1>reporter here at Bloomberg News. This week, we're delighted to

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<v Speaker 1>have on the show Jill Shaw, who covers leverage loans

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<v Speaker 1>for Bloomberg News in New York. How are you doing, Jill, good,

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<v Speaker 1>Thanks for having me. We're also delighted to chat with

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<v Speaker 1>Daniel Fan, he covers China properties for Bloomberg Intelligence in

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<v Speaker 1>Hong Kong. He is going to walk us through the

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<v Speaker 1>latest news on Country Garden. We'll be coming back to

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<v Speaker 1>Daniel a bit later in the show, so please do

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<v Speaker 1>stay with us. But first we turned to Jill Shaw

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<v Speaker 1>with Bloomberg News. Jill, August is typically a very slow

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<v Speaker 1>month for credit deals, especially in the high old market,

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<v Speaker 1>but we've seen more than expected, particularly in loans. Could

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<v Speaker 1>you talk to us about what's driving that issuance and

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<v Speaker 1>sort of set the scene for us for what's happening

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<v Speaker 1>in your market right now.

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<v Speaker 2>Absolutely.

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<v Speaker 1>So.

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<v Speaker 2>The leverage loan market has been in a bit of

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<v Speaker 2>a rally in recent weeks, and you know, prices, secondary

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<v Speaker 2>prices for loans just crossed ninety five cents on the

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<v Speaker 2>dollar for the first time since just about a year ago.

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<v Speaker 2>So what's driving that, you know, part of it is

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<v Speaker 2>the macro macro conditions that all financial markets have been observing,

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<v Speaker 2>which is that inflation data is better than expected and

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<v Speaker 2>inflation is slowing. And also, at the same time, the

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<v Speaker 2>economy is still performing well. There's decent economic growth. So

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<v Speaker 2>all of that gives leverage loan investors some you know,

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<v Speaker 2>some comfort that the economy is not going to go

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<v Speaker 2>into a severe recession, which would really impact leverage loan

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<v Speaker 2>borrowers and companies that are highly indebted. At the same time,

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<v Speaker 2>investors are flush with cash and the yields in this

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<v Speaker 2>market are hard to ignore. So you know, the year

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<v Speaker 2>to date returns in the ASSA class are above eight percent,

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<v Speaker 2>and investors are essentially hunting for paper. Issuance has been

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<v Speaker 2>really lagging this year, and so most of the deals

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<v Speaker 2>that we've seen recently are borrowers trying to sort of

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<v Speaker 2>tap this rally, but many are refinancings or amended extent,

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<v Speaker 2>so it's not quite new money, and that means that,

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<v Speaker 2>you know, investors are still kind of hunting for paper

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<v Speaker 2>that is high yielding.

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<v Speaker 1>That makes a lot of sense. Thanks so much for

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<v Speaker 1>walking us through that, Jill. But there was one deal, right,

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<v Speaker 1>I believe it was Tenaco that was stuck on banks

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<v Speaker 1>books that price recently. Could you talk to me a

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<v Speaker 1>little bit about that and sort of how that came

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<v Speaker 1>to the market.

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<v Speaker 2>Now, Yeah, I mean, you know, the Teneco story is

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<v Speaker 2>one of tapping this credit rally at the right time.

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<v Speaker 2>So Teneco is an auto parts maker. It was a

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<v Speaker 2>buy out by Apollo Management Global Management last year and

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<v Speaker 2>it got stuck on banks books after banks tried to

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<v Speaker 2>sell some of the bonds and loans financing that deal.

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<v Speaker 2>And that was because investors were fleeing risky assets, right

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<v Speaker 2>and in the auto industry was in much worse shape

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<v Speaker 2>last year than it is now. And so at the

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<v Speaker 2>time investors really shown the deal. And what we'd heard

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<v Speaker 2>also was that the terms or the terms governing the

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<v Speaker 2>documentation were sort of not an investor's favor. We are

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<v Speaker 2>very you know, One thing to remember is that we

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<v Speaker 2>are in a bit of a buyer's market right now.

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<v Speaker 2>In that like, investors have been pushing back on documentation,

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<v Speaker 2>which has deteriorated in the loan market over deck over

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<v Speaker 2>years and starting to ask for more tight documentation in

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<v Speaker 2>case companies fall into distress. So anyway, fast forward to

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<v Speaker 2>this rally, it seems that you know, banks are really

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<v Speaker 2>banks that were led by a city group in Bank

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<v Speaker 2>of America, noted the sort of increase in prices in

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<v Speaker 2>the secondary market, noted investor demand for deals, and likely

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<v Speaker 2>saw some sort of macro improvement in the auto industry

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<v Speaker 2>enough to bring this deal. And it got done. You know,

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<v Speaker 2>it still got done at fairly steep discounts, but they

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<v Speaker 2>were able to move that risk off their balance sheet.

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<v Speaker 2>And remember, banks had about more than forty or so

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<v Speaker 2>odd billion dollars stuck on their balance sheet last year

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<v Speaker 2>when investors fled these markets. So Tenaco is one of

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<v Speaker 2>a few remaining Teneco was one of a few remaining

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<v Speaker 2>deals on banks balance sheets, and I'm sure they're quite

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<v Speaker 2>relieved to be.

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<v Speaker 1>Rid of it. That makes a lot of sense. Yes,

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<v Speaker 1>last year, there was tens of billions of dollars of

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<v Speaker 1>these loans, as you said, stuck on bank's books when

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<v Speaker 1>the market massively repriced. But there are still some deals lingering, Jill,

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<v Speaker 1>Is that right? Can we expect to see those anytime soon? Yeah?

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<v Speaker 2>I mean, what's left on banks balance sheets is really

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<v Speaker 2>led by a few deals. So Twitter, which is of

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<v Speaker 2>course Elon Musk's buy out of the social media platform

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<v Speaker 2>that's now called x That's a significant chunk of debt

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<v Speaker 2>sitting on banks balance sheets, and then bright Speed, which

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<v Speaker 2>is Apollos buyout of some broadband holdings from Lumen. So

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<v Speaker 2>you know, I think that those deals are probably further out.

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<v Speaker 2>Twitter is quite volatile in terms of the changes that

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<v Speaker 2>Elon Musk is making right now, and what the performance

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<v Speaker 2>of that company looks like under this new sort of

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<v Speaker 2>ownership is something I think people are watching closely, but

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<v Speaker 2>would need a lot more data before banks could credibly

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<v Speaker 2>bring that deal to market. And Bright Speed has some

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<v Speaker 2>ongoing litigation, which just means that it's sort of impossible

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<v Speaker 2>right now as well. So Teneco is probably one of

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<v Speaker 2>the last hung deals that we will see come to market.

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<v Speaker 2>But from my conversations with bankers, that risk is now

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<v Speaker 2>you know, much of that risk has been marked down

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<v Speaker 2>in prior quarters for banks, and historically speaking, that amount

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<v Speaker 2>is low, and so that's not really getting in the

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<v Speaker 2>way of new underwriting for.

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<v Speaker 1>Banks looking for new underwriting, and banks for sure after

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<v Speaker 1>last year's levels, So can you talk to me a

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<v Speaker 1>little bit though, So we're getting all this supply, now,

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<v Speaker 1>what does that mean for like the post Labor Day

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<v Speaker 1>deal pipeline, which is when we typically see a lot

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<v Speaker 1>of these deals come to market.

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<v Speaker 2>Yeah, So you know, the supply that we're getting right

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<v Speaker 2>now is a lot of refise, a lot of amend

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<v Speaker 2>and extend deals, which is when companies try to push

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<v Speaker 2>out their maturities. So a lot of the issuers that

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<v Speaker 2>can deal with their maturities are coming now and taking

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<v Speaker 2>advantage of this rally right and the tightening of prices.

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<v Speaker 2>We've also seen some dividend deals and an occasional acquisition

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<v Speaker 2>smaller acquisition deal post Labor Day. What I think we're

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<v Speaker 2>expecting is a lot of the big financings that banks

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<v Speaker 2>have signed up for mergers and acquisitions. So you know,

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<v Speaker 2>Sineos is one World Pay is a massive cross border

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<v Speaker 2>deal which banks have underwritten. There was also a one

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<v Speaker 2>billion dollar loan for the buyout of Simon and Schuster.

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<v Speaker 2>So there's quite a few deals in the pipeline for September.

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<v Speaker 2>Beyond that, I think the pipeline is a little quiet,

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<v Speaker 2>But what we're hearing is that their process is underway

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<v Speaker 2>and banks may be able to bring more more debt

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<v Speaker 2>into the syndicated markets.

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<v Speaker 1>Well, we'll be certainly looking out for those deals. I

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<v Speaker 1>want to circle back to Tenaco real quick, if you

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<v Speaker 1>allow me. So, you mentioned the discount, could you give

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<v Speaker 1>us some color. I know it was eighty five cents

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<v Speaker 1>on the dollar for the bond. Would you be able

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<v Speaker 1>to talk to us a little bit about the color

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<v Speaker 1>you were getting from investors, you know, when the talks

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<v Speaker 1>and the discussions around the ultimate pricing were happening.

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<v Speaker 3>Yeah.

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<v Speaker 2>I mean I think that you know, Teneco is a

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<v Speaker 2>cyclical company, and so investors that are wary of auto

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<v Speaker 2>in general are not likely to play in the deal.

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<v Speaker 2>But I what I imagine that investors who did play

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<v Speaker 2>in the deal saw was like a significant discount there

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<v Speaker 2>that looked pretty attractive. And I think that, you know,

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<v Speaker 2>this year is a much better year two for an

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<v Speaker 2>auto parts supplier than last year, and so I think

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<v Speaker 2>all of those things combined kind of and then you know,

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<v Speaker 2>let's not forget that the documentation on that deal became

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<v Speaker 2>more investor friendly. It did when they first brought it

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<v Speaker 2>out like a week or so ago, and then it

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<v Speaker 2>did again before pricing, so investors were certainly, it seems,

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<v Speaker 2>jockeying for that. So yes, the price got it done,

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<v Speaker 2>but also I think, you know, some concessions from the

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<v Speaker 2>sponsor on the on the deal terms was probably the

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<v Speaker 2>thing that pushed it over the finish line.

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<v Speaker 1>Got it. Got it, Thanks so much. And so we've

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<v Speaker 1>been talking a lot about some of these riskier deals.

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<v Speaker 1>I want to pivot to another one of your stories

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<v Speaker 1>that you put out this week that was fantastic. It

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<v Speaker 1>talked about loan defaults and how they're outpacing the defaults

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<v Speaker 1>in junk bonds. Can you walk us through that, because

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<v Speaker 1>I always thought it was typically the other way around.

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<v Speaker 2>Yeah, I mean, you know what it typically has been

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<v Speaker 2>is that they kind of move in tandem. And what

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<v Speaker 2>we're seeing for the first time and like thirty years,

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<v Speaker 2>is this divergence right where loan defaults are up to

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<v Speaker 2>like four percent and high held bond defaults are still

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<v Speaker 2>closer to three or two point seven. So that margin,

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<v Speaker 2>that difference of like one point three percentage points is

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<v Speaker 2>the biggest in thirty years. Why is this happening. It's

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<v Speaker 2>really a rate story, right. Leverage loans are floating rate,

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<v Speaker 2>which means that as as rates go up, the interest

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<v Speaker 2>that borrowers pay on that debt goes up, whereas junk

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<v Speaker 2>bonds are affects right, and so they don't see the

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<v Speaker 2>new sort of rates regime regime until until they come

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<v Speaker 2>back to the market and refinance their deal. There's other

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<v Speaker 2>reasons too, I think, generally speaking, compositionally, the leverage loan

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<v Speaker 2>market is lower quality now than the high held market.

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<v Speaker 2>There's a number of reasons for that. One, the leverage

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<v Speaker 2>loan market is where you know, six almost sixty percent

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<v Speaker 2>of borrow or private equity backed, which tends to mean

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<v Speaker 2>more leverage on those companies they're smaller generally speaking. And

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<v Speaker 2>then you know, because private equity likes really to borrow

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<v Speaker 2>at that B three level, they're lower rated and falling

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<v Speaker 2>below that means that you know, lever's loan borrowers lose

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<v Speaker 2>access to a lot of their investors clos The high

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<v Speaker 2>yield market, in contrast, has actually been getting in better

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<v Speaker 2>quality in recent years. You know, the last time that

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<v Speaker 2>the high yeld market saw many many defaults, as most

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<v Speaker 2>listeners credit listeners will remember, is like the twenty fifteen

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<v Speaker 2>twenty sixteen cycle of energy to faults and really many

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<v Speaker 2>many of you know, many of those defaults have sort

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<v Speaker 2>of moved out of the market, and now that market

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<v Speaker 2>is a lot healthier and a lot of a lot

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<v Speaker 2>of bars have also moved to the leverage loan market.

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<v Speaker 2>So what we have is on one end, a higher

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<v Speaker 2>quality market and high yield, the rates regime really catching

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<v Speaker 2>up to that market just yet though, though that maturity

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<v Speaker 2>wall is approaching. And on the other side, we have

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<v Speaker 2>a market that is lower quality, favored by private equity,

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<v Speaker 2>which means more debt, and where the rates regime has

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<v Speaker 2>already caught up. You know, these benchmark rates where that

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<v Speaker 2>leverse loan leverse loans are PEG two have already risen dramatically,

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<v Speaker 2>and some companies have seen their their interest costs like

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<v Speaker 2>essentially double over the last you know, the last eight

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<v Speaker 2>months or whatever of rate hikes.

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<v Speaker 1>Wow, that is that is a steep increase. And then

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<v Speaker 1>another thing that I've thought about when looking at this

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<v Speaker 1>topic is that another reason why historically loan defaults have

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<v Speaker 1>been lower is because they sit higher in the capital

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<v Speaker 1>structure and they are usually those investors are paid back

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<v Speaker 1>before junk bond investors. Is that correct, Jill, And could

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<v Speaker 1>you talk about that dynamic and how it's changed.

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<v Speaker 2>Yeah, I mean loan investors tend to sit senior secured.

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<v Speaker 2>There's a couple of things here. So one senior secured

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<v Speaker 2>is definitely going to get paid first. If you have

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<v Speaker 2>a loan only capital structure, though it's only it's all

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<v Speaker 2>loans all, you know, sort of everybody has has the

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<v Speaker 2>same priority, whereas like you know, those mixed capital structures

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<v Speaker 2>where there are loans and bonds, Yes, the loans would

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<v Speaker 2>get paid first. And so we do have like loan

0:13:29.880 --> 0:13:33.360
<v Speaker 2>only borrowers, and they are seen to be more risky

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<v Speaker 2>in the leverish loan market because not only do you

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<v Speaker 2>have a capital structure that is exposed to interest rate,

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<v Speaker 2>entire capital structure that is exposed to interest rates. Many

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<v Speaker 2>of these companies did not hedge against inflation or against

0:13:48.600 --> 0:13:52.240
<v Speaker 2>arise in rates. You know, no one really, no, broadly

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<v Speaker 2>speaking across Wall Street, the aggressive regime of raid hikes

0:13:57.600 --> 0:14:02.080
<v Speaker 2>was not expected. And so that's sort of the reason

0:14:02.280 --> 0:14:05.200
<v Speaker 2>as well that like leverage lown borrowers are kind of

0:14:05.200 --> 0:14:07.920
<v Speaker 2>getting hit harder earlier.

0:14:09.240 --> 0:14:11.480
<v Speaker 1>That makes a lot of sense, and I'm sure that

0:14:11.480 --> 0:14:14.120
<v Speaker 1>that is going to be a theme and a topic

0:14:14.280 --> 0:14:17.040
<v Speaker 1>that the entire fixed income market is going to be

0:14:17.720 --> 0:14:21.360
<v Speaker 1>watching very closely, especially as we move into the end

0:14:21.440 --> 0:14:25.680
<v Speaker 1>of the year and see how growth holds up well. Jill,

0:14:25.760 --> 0:14:29.600
<v Speaker 1>thank you so much for coming on. Great stuff. That

0:14:29.760 --> 0:14:32.640
<v Speaker 1>was Jill Shaw from Bloomberg News. Thank you so much

0:14:32.680 --> 0:14:35.600
<v Speaker 1>for joining us. You can read all of Jill's coverage

0:14:35.640 --> 0:14:38.640
<v Speaker 1>and her scoops on the Bloomberg terminal and of course

0:14:38.720 --> 0:14:39.880
<v Speaker 1>at Bloomberg dot com.

0:14:40.280 --> 0:14:41.040
<v Speaker 2>Thanks for having me.

0:14:41.480 --> 0:14:45.120
<v Speaker 1>As I mentioned earlier, I'm delighted to welcome Daniel Fan

0:14:45.320 --> 0:14:49.160
<v Speaker 1>to the Credit Edge. He covers China properties for Bloomberg

0:14:49.240 --> 0:14:53.080
<v Speaker 1>Intelligence based in Hong Kong. Today we are going to

0:14:53.120 --> 0:14:58.880
<v Speaker 1>focus on the distressed Chinese developer Country Garden Holdings. Daniel,

0:14:58.960 --> 0:15:01.360
<v Speaker 1>can you set the scene for us what's going on here?

0:15:01.720 --> 0:15:05.880
<v Speaker 3>Thank you Olivia. Yeah, the scene is actually about Country

0:15:05.920 --> 0:15:10.560
<v Speaker 3>Gardens stress situation. The company used to be one of

0:15:10.600 --> 0:15:13.640
<v Speaker 3>the largest, if not the largest, in the past six

0:15:13.760 --> 0:15:18.320
<v Speaker 3>years in terms of sales. The developer failed to make

0:15:18.360 --> 0:15:21.240
<v Speaker 3>its kep on on payment on time on August six.

0:15:21.760 --> 0:15:26.520
<v Speaker 3>That create a lot of concern about the financial health

0:15:26.520 --> 0:15:30.600
<v Speaker 3>of the company and also drag down the bond price

0:15:30.680 --> 0:15:35.400
<v Speaker 3>of the whole center. That also creates some issue about

0:15:36.240 --> 0:15:40.160
<v Speaker 3>whether the China property seer has some systematic risk.

0:15:41.400 --> 0:15:43.920
<v Speaker 1>Do you think the Country Garden is going to get

0:15:43.920 --> 0:15:46.240
<v Speaker 1>a bailout from the government. Is that an option on

0:15:46.280 --> 0:15:46.720
<v Speaker 1>the table.

0:15:48.040 --> 0:15:51.440
<v Speaker 3>I think there's a lot of expectations that the government

0:15:51.480 --> 0:15:55.480
<v Speaker 3>may do something, but I think the chance, based on

0:15:56.080 --> 0:16:00.440
<v Speaker 3>what we have seen, is not that high. It was

0:16:00.640 --> 0:16:04.800
<v Speaker 3>once a two big to fail developer, and it's now

0:16:04.920 --> 0:16:09.800
<v Speaker 3>becoming maybe a bit too big to be rescued by government,

0:16:10.200 --> 0:16:15.080
<v Speaker 3>especially at the local level, given the size. It has

0:16:15.360 --> 0:16:19.760
<v Speaker 3>more than three hundred projects nationwide, and it would be

0:16:19.800 --> 0:16:24.600
<v Speaker 3>difficult for any local government to handle. So in short,

0:16:24.640 --> 0:16:28.200
<v Speaker 3>the government the top agenda is to ensure project delivery

0:16:28.840 --> 0:16:32.920
<v Speaker 3>while leaving the developer to deal with its own financial problems.

0:16:33.360 --> 0:16:36.840
<v Speaker 1>Got it? Got it? And how likely is it that

0:16:36.960 --> 0:16:40.160
<v Speaker 1>Country Garden will extend its offshore debt.

0:16:40.600 --> 0:16:45.400
<v Speaker 3>It's getting more likely now because the options available on

0:16:45.480 --> 0:16:49.880
<v Speaker 3>the table are getting less. It tried to do a

0:16:49.960 --> 0:16:53.080
<v Speaker 3>share placement at the end of July, but for some

0:16:53.160 --> 0:16:56.760
<v Speaker 3>reason it did not go through, and then share price

0:16:56.880 --> 0:17:01.080
<v Speaker 3>dropped from one point four Hong Kong dollar around eighty

0:17:01.160 --> 0:17:06.159
<v Speaker 3>cents yesterday closing. So it's a little bit difficult to

0:17:06.280 --> 0:17:11.920
<v Speaker 3>attack the equity market in terms of getting financing I mean,

0:17:12.280 --> 0:17:14.800
<v Speaker 3>I mean in terms of financing coming deal. It has

0:17:14.840 --> 0:17:18.920
<v Speaker 3>two convertible bonds pay about in December and one come

0:17:19.000 --> 0:17:23.520
<v Speaker 3>football coming deal in January. The total amount is around

0:17:23.520 --> 0:17:25.800
<v Speaker 3>one point nine billion US dollars.

0:17:25.440 --> 0:17:28.000
<v Speaker 1>One point nine billion US dollars. That's quite a chunk

0:17:28.000 --> 0:17:31.600
<v Speaker 1>of change. So talk to me about the impact this

0:17:31.760 --> 0:17:35.800
<v Speaker 1>is going to have on Asia's fixed income sector. If

0:17:35.800 --> 0:17:38.080
<v Speaker 1>Country Garden needs to extend offshore.

0:17:37.760 --> 0:17:42.840
<v Speaker 3>Deb uh, the impact more coming from like as a

0:17:43.200 --> 0:17:47.959
<v Speaker 3>location perspective, Country Garden has around eight point four billion

0:17:49.280 --> 0:17:53.320
<v Speaker 3>dollar bond outstanding in the Bloomberg Asia Higher Bond Index,

0:17:54.160 --> 0:18:00.720
<v Speaker 3>the ind size is around like six six seventy six billion. Basically,

0:18:01.560 --> 0:18:06.199
<v Speaker 3>fund managers need to find something else to replace Country Garden.

0:18:06.760 --> 0:18:10.040
<v Speaker 3>And also another thing is Country Garden used to be

0:18:10.119 --> 0:18:14.760
<v Speaker 3>a core holding of many fund managers in their portfolio.

0:18:15.840 --> 0:18:18.560
<v Speaker 1>Are there like can you give us like a sense

0:18:18.600 --> 0:18:21.080
<v Speaker 1>of sort of like what other options there are? Like

0:18:21.160 --> 0:18:24.680
<v Speaker 1>what could they be reallocating to or what are some

0:18:24.920 --> 0:18:28.400
<v Speaker 1>opportunities that you are hearing are out there for investors

0:18:28.520 --> 0:18:29.719
<v Speaker 1>besides Country Garden.

0:18:30.800 --> 0:18:35.919
<v Speaker 3>I think naturally you have a smaller index after Country Garden.

0:18:35.920 --> 0:18:38.280
<v Speaker 3>If they don't pay, they will be out of the

0:18:38.320 --> 0:18:45.240
<v Speaker 3>index preis, and then I think you have an impact

0:18:45.320 --> 0:18:48.879
<v Speaker 3>on the China how you market in the sense that

0:18:48.960 --> 0:18:53.560
<v Speaker 3>people kind of like feel skeptical about the market. They

0:18:53.600 --> 0:18:59.280
<v Speaker 3>may look for somewhere else outside of China for investment opportunities.

0:18:59.680 --> 0:19:04.679
<v Speaker 3>Maybe they may look into like Japan or even Australia

0:19:05.280 --> 0:19:08.720
<v Speaker 3>to broader the concept of Asia. In the past, when

0:19:08.760 --> 0:19:12.440
<v Speaker 3>we talk about Asia, we usually talkt about Asia excluded

0:19:12.520 --> 0:19:17.920
<v Speaker 3>in Japan and also excluding Australia. Now, yeah, we may

0:19:18.080 --> 0:19:22.600
<v Speaker 3>need to change the concept Asia may include Japan and Australia.

0:19:22.760 --> 0:19:27.359
<v Speaker 3>And the second point is they may they may get

0:19:27.359 --> 0:19:30.119
<v Speaker 3>out of the hire market and focus more in the

0:19:30.240 --> 0:19:34.760
<v Speaker 3>investment grade market. That will be some of the impact

0:19:35.359 --> 0:19:35.800
<v Speaker 3>in the.

0:19:36.440 --> 0:19:39.760
<v Speaker 1>Very interesting Yeah, a lot of people, a lot of

0:19:39.760 --> 0:19:41.960
<v Speaker 1>my sources talking to me about, you know, the up

0:19:42.080 --> 0:19:45.359
<v Speaker 1>and quality trade, whether it's China property or you know,

0:19:45.640 --> 0:19:48.760
<v Speaker 1>US investment grade bonds. A lot of investors in the

0:19:48.800 --> 0:19:51.720
<v Speaker 1>market are looking to move up in quality and capture

0:19:52.240 --> 0:19:55.160
<v Speaker 1>those yields that we haven't seen in such a long time.

0:19:55.480 --> 0:19:59.879
<v Speaker 1>So I want to switch from the fixed income markets

0:20:00.080 --> 0:20:03.280
<v Speaker 1>to the physical housing market. How is that impacted by

0:20:03.280 --> 0:20:05.480
<v Speaker 1>everything that's going on with Country Garden.

0:20:05.480 --> 0:20:08.920
<v Speaker 3>Because Country Garden is kind of like a household name

0:20:09.880 --> 0:20:13.919
<v Speaker 3>alsore in the in the physical market, it will have

0:20:14.119 --> 0:20:18.920
<v Speaker 3>damage in terms of home buiased confidence. They don't know

0:20:19.119 --> 0:20:23.679
<v Speaker 3>which developer is trustworthy if they want to buy a

0:20:23.720 --> 0:20:28.080
<v Speaker 3>piece of property. I think that is the most important

0:20:28.320 --> 0:20:35.360
<v Speaker 3>impact in the physical market and also there if Country

0:20:35.359 --> 0:20:40.080
<v Speaker 3>Garden is not trustworthy, then who else? And then people

0:20:40.119 --> 0:20:45.439
<v Speaker 3>may think it's the whole like property center, not safe

0:20:46.160 --> 0:20:51.480
<v Speaker 3>from I mean from a home buased perspective. If we

0:20:51.560 --> 0:20:55.640
<v Speaker 3>look at like Evergrand, Evergrand, we can still say it's

0:20:55.680 --> 0:20:59.000
<v Speaker 3>a stand alone case because I think people kind of

0:20:59.080 --> 0:21:03.439
<v Speaker 3>understand its business model is using a higher leverage the

0:21:03.480 --> 0:21:08.240
<v Speaker 3>Country Garden. What's a different story. It was rated investment

0:21:08.320 --> 0:21:10.720
<v Speaker 3>grade just like more than slightly more than a year

0:21:10.760 --> 0:21:16.400
<v Speaker 3>ago and a high quality developer when the government launched

0:21:16.440 --> 0:21:19.760
<v Speaker 3>it first arrow of a rescue plan.

0:21:21.320 --> 0:21:25.280
<v Speaker 1>Very interesting. So is policy stimulus going to help at

0:21:25.280 --> 0:21:27.280
<v Speaker 1>this point? Can you talk about it? Talk to us

0:21:27.359 --> 0:21:28.399
<v Speaker 1>about it from that angle?

0:21:32.480 --> 0:21:38.280
<v Speaker 3>Yeah, I think the policy matches trying to help to

0:21:38.359 --> 0:21:42.680
<v Speaker 3>adjust the demand side, like easing home purchased restriction a

0:21:42.840 --> 0:21:47.199
<v Speaker 3>lower deposit RAISO. I think the more important pon their

0:21:47.280 --> 0:21:52.639
<v Speaker 3>stressing is to ensure delivery. It's kind of like a

0:21:54.680 --> 0:21:59.520
<v Speaker 3>double as sol because they won't try to ensure delivery,

0:22:00.080 --> 0:22:05.520
<v Speaker 3>so meaning that they require developers to keep more cares

0:22:05.560 --> 0:22:09.560
<v Speaker 3>at the project level to make sure they're able to

0:22:09.600 --> 0:22:12.600
<v Speaker 3>complete the project and deliver to the hands of their

0:22:12.600 --> 0:22:16.800
<v Speaker 3>home buyers at the same time. Decide effect is developer

0:22:18.480 --> 0:22:21.960
<v Speaker 3>they are less able to use the cares available for

0:22:22.160 --> 0:22:26.879
<v Speaker 3>debt surfacing, especially for offshore bondholders, so that this is

0:22:27.240 --> 0:22:30.840
<v Speaker 3>one point and the other thing is in their second

0:22:31.119 --> 0:22:36.840
<v Speaker 3>row to support the center the government wire the agencies

0:22:37.040 --> 0:22:42.679
<v Speaker 3>provide guarantee onsore for developers to issue onsore bonds, but

0:22:42.800 --> 0:22:46.159
<v Speaker 3>at the same time they require developers to post collateral

0:22:47.080 --> 0:22:51.800
<v Speaker 3>against the guarantee. So because a lot of the Chinese

0:22:52.000 --> 0:22:55.959
<v Speaker 3>property developers they depend very much more than ninety percent

0:22:56.680 --> 0:23:00.719
<v Speaker 3>of their revenue from project development, many of them they

0:23:00.720 --> 0:23:06.960
<v Speaker 3>don't have like sizable investment properties or unpledged assets to

0:23:07.000 --> 0:23:11.280
<v Speaker 3>provide to the government as collateral against which they get

0:23:11.320 --> 0:23:13.240
<v Speaker 3>guarantee on their bond issuance.

0:23:13.320 --> 0:23:17.639
<v Speaker 1>Also got it, Got it, And then I wanted to

0:23:17.680 --> 0:23:20.720
<v Speaker 1>follow up with you again on like the home buyers

0:23:21.640 --> 0:23:24.679
<v Speaker 1>are people you talked about a crisis of confidence, you

0:23:24.680 --> 0:23:27.119
<v Speaker 1>know in the home buyers who are who are looking

0:23:28.080 --> 0:23:30.840
<v Speaker 1>to buy property, but has anyone lost their homes or

0:23:30.920 --> 0:23:33.320
<v Speaker 1>is anyone's homes at risk because of this?

0:23:33.840 --> 0:23:40.480
<v Speaker 3>We see some cases that like people are protesting because

0:23:40.600 --> 0:23:46.280
<v Speaker 3>the unit they put money on are still not like

0:23:46.320 --> 0:23:50.960
<v Speaker 3>completely yet. We see cases here and there, but not

0:23:51.040 --> 0:23:54.200
<v Speaker 3>in a law scale so probably due to the policy

0:23:54.320 --> 0:23:56.840
<v Speaker 3>to mature delivery by the government.

0:23:57.080 --> 0:24:01.160
<v Speaker 1>Thanks very much that it was Daniel Fan Bloomberg Intelligence.

0:24:01.280 --> 0:24:03.600
<v Speaker 1>You can read all of his great analysis on the

0:24:03.600 --> 0:24:06.760
<v Speaker 1>Bloomberg Terminal. Do check it out. Hope to see you

0:24:06.840 --> 0:24:09.760
<v Speaker 1>back on the show soon, Daniel. Thank you, and thanks

0:24:09.760 --> 0:24:13.359
<v Speaker 1>again to Jill Shaw from Bloomberg News. Read all of

0:24:13.400 --> 0:24:16.679
<v Speaker 1>her great stuff on the terminal and at Bloomberg dot com.

0:24:17.080 --> 0:24:20.240
<v Speaker 1>And I'm Olivia Raymonde. It's been a pleasure having you

0:24:20.760 --> 0:24:25.439
<v Speaker 1>join us again next week on the Credit Edge.