1 00:00:07,680 --> 00:00:10,800 Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast. 2 00:00:11,240 --> 00:00:14,000 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:14,520 --> 00:00:17,960 Speaker 1: Today's guests so Alice Wong, who covers China's credit markets 4 00:00:17,960 --> 00:00:20,440 Speaker 1: for Bloomberg News from Hong Kong. She's been all over 5 00:00:20,480 --> 00:00:22,439 Speaker 1: the biggest scoops from that region. We're delighted to have 6 00:00:22,520 --> 00:00:24,720 Speaker 1: you on the show. Thank you for having me to. 7 00:00:25,280 --> 00:00:27,680 Speaker 1: We're also very happy to welcome Mary Ellen Olsen, who 8 00:00:27,680 --> 00:00:31,520 Speaker 1: looks at commodity producers throughout Asia for Bloomberg Intelligence, also 9 00:00:31,600 --> 00:00:34,280 Speaker 1: based in Hong Kong. Thanks for having me. We'll be 10 00:00:34,280 --> 00:00:36,519 Speaker 1: discussing a big Indian story with her in a bit. 11 00:00:36,960 --> 00:00:38,960 Speaker 1: Spoiler alert, it's not a danny that it could be 12 00:00:39,000 --> 00:00:42,120 Speaker 1: heading that way. Before we get to that, Alice, what's 13 00:00:42,120 --> 00:00:44,239 Speaker 1: the mood in Hong Kong right now? I was there 14 00:00:44,240 --> 00:00:46,479 Speaker 1: a few weeks ago and everyone was still wearing masks 15 00:00:46,479 --> 00:00:49,040 Speaker 1: in the street. Anyone who didn't risk the hefty fine 16 00:00:49,680 --> 00:00:52,560 Speaker 1: the whole worlds now is betting on a big China reopening. 17 00:00:52,760 --> 00:00:56,360 Speaker 1: What's the story there? Yeah, I mean personally, I'm definitely 18 00:00:56,360 --> 00:00:58,840 Speaker 1: a very excited. No, but you know what surpride new 19 00:00:58,960 --> 00:01:02,880 Speaker 1: is after all, almost a thousand days of the mask 20 00:01:03,000 --> 00:01:07,160 Speaker 1: mandate and now the government dropping it. Actually, most people 21 00:01:07,200 --> 00:01:09,959 Speaker 1: still choose to wear a mask, so we actually had 22 00:01:09,959 --> 00:01:13,400 Speaker 1: a story on that today about walk out on the street, 23 00:01:13,480 --> 00:01:15,840 Speaker 1: and most people are still wearing it. But I think 24 00:01:15,880 --> 00:01:20,600 Speaker 1: the market is very excited about Chinese and Hong Kong 25 00:01:20,600 --> 00:01:23,800 Speaker 1: government opening out. So you can see all the markets 26 00:01:23,880 --> 00:01:27,919 Speaker 1: are turning up in the region here today. Very interesting. 27 00:01:27,959 --> 00:01:29,840 Speaker 1: Let's hope it keeps moving in that direction. And I 28 00:01:29,880 --> 00:01:31,880 Speaker 1: really do look forward to getting back to Hong Kong. 29 00:01:32,319 --> 00:01:36,720 Speaker 1: What great city. So Alice, let's talk ever Grand. But 30 00:01:36,840 --> 00:01:39,679 Speaker 1: before we dig into the credit story for listeners maybe 31 00:01:39,680 --> 00:01:42,720 Speaker 1: not familiar, what is it? Why do we care? And 32 00:01:42,720 --> 00:01:45,639 Speaker 1: why has it dominated the headlines in Asia and around 33 00:01:45,680 --> 00:01:48,600 Speaker 1: the world for so long? Yeah? What is ever Grand 34 00:01:49,040 --> 00:01:51,520 Speaker 1: and why do we care about? The story? So the 35 00:01:51,720 --> 00:01:55,440 Speaker 1: sheer size of it that should be enough to catch 36 00:01:56,040 --> 00:02:00,400 Speaker 1: reader's attention and listeners. In this case, this is the 37 00:02:00,480 --> 00:02:04,760 Speaker 1: company that was founded in nineteen ninety six and just 38 00:02:04,960 --> 00:02:09,200 Speaker 1: like a lot of other developers in China, property developers 39 00:02:09,200 --> 00:02:13,440 Speaker 1: in China, IF relied heavily on borrowing to feel its growth, 40 00:02:13,600 --> 00:02:18,080 Speaker 1: and dollar bombs is among them. So it had about 41 00:02:18,120 --> 00:02:22,760 Speaker 1: one point ninety seven trillion yen that is two hundred 42 00:02:22,760 --> 00:02:26,880 Speaker 1: and eighty seven billion US dollars in liabilities as of 43 00:02:27,000 --> 00:02:30,760 Speaker 1: June twenty twenty. First, that is the most among its 44 00:02:30,760 --> 00:02:35,560 Speaker 1: developer peers in China. It also was the largest dollar 45 00:02:35,639 --> 00:02:39,320 Speaker 1: debt borrower among its peers. So what happens when it 46 00:02:39,360 --> 00:02:43,840 Speaker 1: really carries broader implications for the whole dollar bond market 47 00:02:43,840 --> 00:02:47,800 Speaker 1: in the region as well as China's nearly sixty trillion 48 00:02:47,880 --> 00:02:53,959 Speaker 1: US dollar financial system, and it has defaulted in It 49 00:02:54,080 --> 00:02:57,320 Speaker 1: defaulted in his US dollar bob in late twenty twenty 50 00:02:57,480 --> 00:03:04,320 Speaker 1: First Fastful, We're now in March twenty twenty three, and 51 00:03:05,800 --> 00:03:10,519 Speaker 1: creditors are still not see in concrete progress on this 52 00:03:10,680 --> 00:03:15,800 Speaker 1: debt restructuring. So that is why it's still dominating that lie, 53 00:03:16,320 --> 00:03:21,080 Speaker 1: you know, because people are paying attention to debt restructuring progress. 54 00:03:21,080 --> 00:03:27,239 Speaker 1: And also Everground's restructuring will set examples for other real 55 00:03:27,400 --> 00:03:32,200 Speaker 1: estate firms from the nation. The sector has snowballed into 56 00:03:32,680 --> 00:03:36,080 Speaker 1: record amount of default from once being one of the 57 00:03:36,160 --> 00:03:40,640 Speaker 1: hardest bomb markets in the world. And Everground's own restructuring 58 00:03:40,680 --> 00:03:45,040 Speaker 1: will be China's largest ever and it is only the 59 00:03:45,080 --> 00:03:48,040 Speaker 1: only restructuring that's going on in the sector right now. 60 00:03:48,200 --> 00:03:52,720 Speaker 1: That is carried out by dominated by the government. So 61 00:03:52,840 --> 00:03:56,000 Speaker 1: let's just back up. The Everground is a property developer. 62 00:03:56,040 --> 00:03:58,720 Speaker 1: They make property. Surely that's a good business to be in. 63 00:03:58,800 --> 00:04:01,840 Speaker 1: It's a huge population, there's a need for housing in China. 64 00:04:01,880 --> 00:04:03,960 Speaker 1: What's what's going Why can't they why can't they pay 65 00:04:04,000 --> 00:04:09,240 Speaker 1: their debt? Yeah, so let's talk about that first. How 66 00:04:09,360 --> 00:04:11,520 Speaker 1: you know, it's a private developer in China. It's one 67 00:04:11,520 --> 00:04:14,120 Speaker 1: of the largest. It owns. It says it owns more 68 00:04:14,160 --> 00:04:19,760 Speaker 1: than one thousand projects across almost three hundred cities in China. 69 00:04:19,960 --> 00:04:24,080 Speaker 1: UM and really it's problems started in twenty twenty one. 70 00:04:24,120 --> 00:04:27,120 Speaker 1: It had in liquidity scare and then it's that it's 71 00:04:27,160 --> 00:04:31,400 Speaker 1: going to outline a problem to solve its liquidity issue. 72 00:04:32,120 --> 00:04:36,920 Speaker 1: But at that time China wanted to address UM the 73 00:04:37,000 --> 00:04:41,320 Speaker 1: overleveraged problem that has been existing in this sector for 74 00:04:41,440 --> 00:04:45,520 Speaker 1: a long time. UM and that is essentially what's happened. 75 00:04:45,600 --> 00:04:48,400 Speaker 1: You know, this is not an issue that is only 76 00:04:48,440 --> 00:04:52,760 Speaker 1: belonging to everigrants. All of them are under the government's 77 00:04:52,880 --> 00:04:57,600 Speaker 1: regulatory crackdown. So all of them had run into the 78 00:04:57,720 --> 00:05:01,640 Speaker 1: regulatory tightening. And again that is not happening only with 79 00:05:01,880 --> 00:05:04,640 Speaker 1: the real estate sector. Either China has cracked down or 80 00:05:04,920 --> 00:05:08,360 Speaker 1: as we have seen on the education sector as well 81 00:05:08,400 --> 00:05:13,600 Speaker 1: as the technology sector. So China's housing markets began to 82 00:05:13,600 --> 00:05:18,159 Speaker 1: slow down because the government don't want people to the 83 00:05:18,320 --> 00:05:23,920 Speaker 1: government's chanting slogan. Slogan is housing is for is not 84 00:05:23,960 --> 00:05:26,919 Speaker 1: for speculation, So they don't want you to speculate on 85 00:05:27,000 --> 00:05:30,120 Speaker 1: buying anymore. Um And we also know what happened during 86 00:05:30,120 --> 00:05:33,840 Speaker 1: the pandemic. China's economy is not growing as fast as 87 00:05:33,880 --> 00:05:37,599 Speaker 1: it used to be um And China's population is also 88 00:05:37,800 --> 00:05:40,000 Speaker 1: shrinking now for the first time in a long time. 89 00:05:40,680 --> 00:05:43,920 Speaker 1: Um And so there's the demound size of or shrinking. 90 00:05:44,000 --> 00:05:48,840 Speaker 1: So all of those components adding up together right now 91 00:05:48,960 --> 00:05:52,120 Speaker 1: is a hard time for China's real estate sector. So 92 00:05:52,160 --> 00:05:54,280 Speaker 1: they built too much, They browed too much money, They 93 00:05:54,760 --> 00:05:57,240 Speaker 1: built the wrong kind of housing. What was wrong with 94 00:05:57,279 --> 00:06:00,520 Speaker 1: the business model? Yeah, like you know, you pointed out exactly, 95 00:06:01,360 --> 00:06:05,320 Speaker 1: they borrow too much. They rely too heavily on borrowing 96 00:06:05,440 --> 00:06:10,040 Speaker 1: to fund its growth. And it's been a lot of 97 00:06:10,120 --> 00:06:13,400 Speaker 1: borrowing in a very short amount of time that is 98 00:06:13,440 --> 00:06:18,240 Speaker 1: really posing risks to the whole nation's financial system. That's 99 00:06:18,279 --> 00:06:20,880 Speaker 1: why China wanted to crack down on it. So they 100 00:06:20,920 --> 00:06:25,400 Speaker 1: have how much debt? Well, I just mentioned ever, grind 101 00:06:25,440 --> 00:06:31,120 Speaker 1: alone has over two hundred eighty billion US dollars in 102 00:06:31,240 --> 00:06:34,360 Speaker 1: liabilities as of June twenty twenty first, and that's this 103 00:06:34,480 --> 00:06:37,960 Speaker 1: company alone. Yeah, and what's the latest situation with them 104 00:06:37,960 --> 00:06:40,560 Speaker 1: trying to figure that out? They're in the restructuring. What 105 00:06:40,640 --> 00:06:43,880 Speaker 1: are the key dates we're looking for here? Yeah, they're 106 00:06:43,880 --> 00:06:47,640 Speaker 1: in the restructuring. And what's really refrustrating for people is 107 00:06:47,920 --> 00:06:52,320 Speaker 1: it has promised timeline and debtline over and over again 108 00:06:52,880 --> 00:06:56,360 Speaker 1: and it has failed to deliver on them over and 109 00:06:56,440 --> 00:06:59,359 Speaker 1: over again. So the next date that we are watching 110 00:06:59,400 --> 00:07:04,239 Speaker 1: for really is March twenties. It's a court hearing date. 111 00:07:05,240 --> 00:07:09,440 Speaker 1: And last time at the court's hearing which has been 112 00:07:09,480 --> 00:07:12,720 Speaker 1: adjoined to March twenties, every grant had promised the judge 113 00:07:13,160 --> 00:07:17,960 Speaker 1: that it will present a plan and have creditors support 114 00:07:18,520 --> 00:07:21,200 Speaker 1: by early March, and we know, we know now is 115 00:07:21,240 --> 00:07:26,320 Speaker 1: March first, and that is nowhere to be seen. So yeah, 116 00:07:26,400 --> 00:07:29,280 Speaker 1: those are the key dates that we're watching for right now. 117 00:07:29,880 --> 00:07:32,840 Speaker 1: And the back up, just let me go back a 118 00:07:32,880 --> 00:07:36,520 Speaker 1: little bit on this lawsuit that I'm talking about so 119 00:07:36,640 --> 00:07:40,840 Speaker 1: what's called is it's a winding up lawsuit. We have 120 00:07:40,960 --> 00:07:45,560 Speaker 1: seen several developers creditors use this strategy in Hong Kong 121 00:07:45,640 --> 00:07:48,520 Speaker 1: Core in the past few months. That is, essentially, when 122 00:07:48,600 --> 00:07:52,040 Speaker 1: the company owes a certain amount of money that has 123 00:07:52,080 --> 00:07:55,080 Speaker 1: not paid, the creditor can go to court and said 124 00:07:55,400 --> 00:07:57,880 Speaker 1: this and say, this company owes me debt that is 125 00:07:57,920 --> 00:08:01,960 Speaker 1: not paying me. I want to plan it to be insolvent. 126 00:08:02,360 --> 00:08:06,040 Speaker 1: I wanted to go into liquidation, sell its assets, and 127 00:08:06,080 --> 00:08:11,600 Speaker 1: repaying is dead. So many creditors have taken up this approach. 128 00:08:13,840 --> 00:08:18,000 Speaker 1: It's not ideal because if a company actually goes into liquidation, 129 00:08:18,840 --> 00:08:22,760 Speaker 1: it needs to fire sell its assets, and you know, 130 00:08:22,800 --> 00:08:25,040 Speaker 1: creditors will get their money. But that is not the 131 00:08:25,080 --> 00:08:27,520 Speaker 1: result that everyone wants. Someone just wants some of them 132 00:08:27,600 --> 00:08:31,440 Speaker 1: just wants a better recovery. And so everyone is now 133 00:08:31,480 --> 00:08:36,160 Speaker 1: in this lawsuit and it has repeatedly adjourned its hearings 134 00:08:36,360 --> 00:08:41,360 Speaker 1: and delayed presenting a restructuring plant. It keeps telling the 135 00:08:41,400 --> 00:08:44,160 Speaker 1: Core I'm working on a plan, but it's just not 136 00:08:44,400 --> 00:08:49,160 Speaker 1: presenting it. Do we know what's holding things up? Yeah? Actually, 137 00:08:49,760 --> 00:08:53,200 Speaker 1: so there are a few things that the company is 138 00:08:54,280 --> 00:08:58,840 Speaker 1: having disagreements with a major group of dollar bond holders 139 00:08:58,840 --> 00:09:03,199 Speaker 1: over that we have learned from sources UM, so we 140 00:09:03,640 --> 00:09:07,440 Speaker 1: may get into a bit of litergree details here. UM. 141 00:09:07,720 --> 00:09:10,240 Speaker 1: The source has told us before that every ground has 142 00:09:10,320 --> 00:09:14,600 Speaker 1: presented two solutions. The first one is to just extend 143 00:09:14,640 --> 00:09:18,240 Speaker 1: the debt UM and the second one will require swapping 144 00:09:18,400 --> 00:09:22,000 Speaker 1: some of the debt into its shares as well as 145 00:09:22,120 --> 00:09:26,560 Speaker 1: shares of the Hong Kong listed units UM. And now 146 00:09:26,800 --> 00:09:31,080 Speaker 1: they have some disagreements over you know, the equity valuation 147 00:09:31,880 --> 00:09:35,679 Speaker 1: of those shares UM, which you know, if the company 148 00:09:35,800 --> 00:09:39,600 Speaker 1: is more bullish on its own share valuation whereas if 149 00:09:39,640 --> 00:09:43,920 Speaker 1: creditors think it's less, it would imply a deeper haircut 150 00:09:44,120 --> 00:09:48,840 Speaker 1: for the bondholders UM. So valuation is one thing. We 151 00:09:48,960 --> 00:09:53,280 Speaker 1: also learned that the company is only willing to offer 152 00:09:53,320 --> 00:09:59,160 Speaker 1: a small percentage of its stakes in those teamiths, whereas 153 00:09:59,640 --> 00:10:04,760 Speaker 1: the editors are demanding almost entire Evergrand's entire stakes in 154 00:10:04,800 --> 00:10:08,680 Speaker 1: those units. So that's another sticking point. There are other 155 00:10:08,760 --> 00:10:12,440 Speaker 1: things like the the group is actually demanding the company 156 00:10:12,520 --> 00:10:16,760 Speaker 1: to address is corporate governance issue that we have seen 157 00:10:16,840 --> 00:10:19,960 Speaker 1: this happening, How do we prevent this from happening again? 158 00:10:20,040 --> 00:10:24,040 Speaker 1: So that's among their demands. Those are a few things 159 00:10:24,120 --> 00:10:27,120 Speaker 1: that they just cannot get on the same page at 160 00:10:27,120 --> 00:10:30,480 Speaker 1: the moment. And as you mentioned, it's not just local investor, 161 00:10:30,520 --> 00:10:32,560 Speaker 1: its foreign bond holders as well. Who are we talking about? 162 00:10:32,559 --> 00:10:36,160 Speaker 1: Are there any big names in there? Yeah, Unfortunately, I'm 163 00:10:36,200 --> 00:10:40,400 Speaker 1: not sure I can disclose that at the moment, but yeah, 164 00:10:40,400 --> 00:10:44,559 Speaker 1: you're absolutely right. Um. Evergrand debt is not just held 165 00:10:44,600 --> 00:10:49,199 Speaker 1: by local creditors. It really has deep implication for China's 166 00:10:49,200 --> 00:10:53,080 Speaker 1: onshore financial system. But let's not forget it used to 167 00:10:53,120 --> 00:10:56,920 Speaker 1: be the largest dollar debt borrower. Like I said, in China, 168 00:10:57,400 --> 00:11:01,240 Speaker 1: China's a real estate sector. So dollar bonds are held 169 00:11:01,280 --> 00:11:04,680 Speaker 1: by a lot of global investors, big and small. And 170 00:11:04,720 --> 00:11:07,760 Speaker 1: the group that I'm talking about here is an ale 171 00:11:07,880 --> 00:11:12,040 Speaker 1: group of dollar bond holders and they are just some 172 00:11:12,080 --> 00:11:14,440 Speaker 1: of the big ones that are talking with the company. 173 00:11:15,320 --> 00:11:18,920 Speaker 1: But that the company still need to after convincing them, 174 00:11:18,920 --> 00:11:21,959 Speaker 1: still need to convince is Broader set all of his 175 00:11:22,080 --> 00:11:26,000 Speaker 1: dollar bond holders at some point to agree on a 176 00:11:26,040 --> 00:11:30,360 Speaker 1: restructuring plan to really move the progress forward. You mentioned 177 00:11:30,360 --> 00:11:32,160 Speaker 1: it right down as well, and obviously the company needs 178 00:11:32,200 --> 00:11:34,840 Speaker 1: to get rid of some of that. What are we 179 00:11:34,880 --> 00:11:36,560 Speaker 1: talking about, do we have any sense at this point 180 00:11:36,600 --> 00:11:38,760 Speaker 1: of how much of a haircut credits might be taking 181 00:11:38,840 --> 00:11:44,560 Speaker 1: hire That unfortunately is not very clear at the moment yet. Okay, 182 00:11:44,600 --> 00:11:47,960 Speaker 1: and so what will happen if Everground loses its lawsuit? Yeah, 183 00:11:48,000 --> 00:11:50,400 Speaker 1: that's the scary thing. As I was saying, a lot 184 00:11:50,440 --> 00:11:54,600 Speaker 1: of creditors have been threatening with such lawsuits to get 185 00:11:54,600 --> 00:11:57,679 Speaker 1: the company to come to the negotiation table. And I 186 00:11:57,720 --> 00:12:00,800 Speaker 1: would say in Everground's case, it has definitely worked because 187 00:12:00,840 --> 00:12:04,480 Speaker 1: the company's restructuring did pick up pace after that winding 188 00:12:04,520 --> 00:12:08,480 Speaker 1: up lawsuit was filed. But we have started to see 189 00:12:08,600 --> 00:12:12,960 Speaker 1: some developers actually getting the winding up order from Hong 190 00:12:13,040 --> 00:12:16,559 Speaker 1: Kong court and facing liquidation. So that's what's going to 191 00:12:16,640 --> 00:12:20,520 Speaker 1: happen to Evergrants if they lose this lawsuit, the court 192 00:12:20,600 --> 00:12:23,920 Speaker 1: can appoint a liquidator, comes these all of its off 193 00:12:23,960 --> 00:12:28,400 Speaker 1: score assets and sell them and use them to repay 194 00:12:28,520 --> 00:12:32,360 Speaker 1: its credit tres. Another thing here is you know if 195 00:12:32,360 --> 00:12:37,400 Speaker 1: Evergrand doesn't want to lose this lawsuits. It's also important, 196 00:12:37,600 --> 00:12:40,920 Speaker 1: also important because the company's shares and this unit shares 197 00:12:41,400 --> 00:12:45,160 Speaker 1: have been on pause. They have been halted since March 198 00:12:45,240 --> 00:12:48,880 Speaker 1: twenty twenty two because it could not deliver is earnings results, 199 00:12:49,679 --> 00:12:54,319 Speaker 1: but it has seen them been on pause, and to 200 00:12:54,360 --> 00:12:59,040 Speaker 1: get this lawsuit dismissed or result is among many conditions 201 00:12:59,120 --> 00:13:02,920 Speaker 1: for it to resume his shares trading again. And if 202 00:13:02,920 --> 00:13:06,520 Speaker 1: the shares do not trade for over eighteen months, it 203 00:13:06,600 --> 00:13:10,080 Speaker 1: could be delisted from Hong Kong Stock Exchange. So that's 204 00:13:10,080 --> 00:13:13,400 Speaker 1: another thing that you know, the company needs to watch 205 00:13:13,400 --> 00:13:16,240 Speaker 1: out for. So it's obviously a huge story in China 206 00:13:16,320 --> 00:13:18,400 Speaker 1: right now, and it also involves a man who was 207 00:13:18,440 --> 00:13:20,960 Speaker 1: once the richest in the country and one of the 208 00:13:20,960 --> 00:13:25,679 Speaker 1: most influential people. You know, he was across business, across politics, 209 00:13:25,880 --> 00:13:29,000 Speaker 1: and worth about forty two billion dollars at one point. 210 00:13:29,480 --> 00:13:31,000 Speaker 1: Can you give us a bit of a flavor of that, 211 00:13:31,040 --> 00:13:36,440 Speaker 1: please sell us? Yeah? Sure, So Hui Kayan, like you 212 00:13:36,520 --> 00:13:40,840 Speaker 1: were saying, was once China's one of China's richest and 213 00:13:41,160 --> 00:13:47,800 Speaker 1: most influential business meant he used to be worth forty 214 00:13:47,800 --> 00:13:51,480 Speaker 1: two US billion US dollars you were men mentioning, and 215 00:13:51,559 --> 00:13:57,720 Speaker 1: now there's lost ninety three percent of that wealth he used. 216 00:13:57,960 --> 00:14:02,080 Speaker 1: He also was very politically stabby. He has been part 217 00:14:02,120 --> 00:14:05,640 Speaker 1: of the political advisory body since two thousand and eight, 218 00:14:06,559 --> 00:14:10,840 Speaker 1: but now he's no longer part of China's People's Political 219 00:14:10,960 --> 00:14:14,600 Speaker 1: Consultive Conference anymore. So he's lost as wealth and he's 220 00:14:14,600 --> 00:14:17,720 Speaker 1: a political status. And in terms of the ripple effect 221 00:14:17,760 --> 00:14:22,400 Speaker 1: from this whole Evergrand situation, what are the bigger implications 222 00:14:22,400 --> 00:14:25,520 Speaker 1: for China's credit markets? I mean, has the default at 223 00:14:25,560 --> 00:14:29,560 Speaker 1: this scale scared away foreign investors? Are they are the 224 00:14:29,640 --> 00:14:33,520 Speaker 1: developers now shut out of capital markets? Yeah? Absolutely, both 225 00:14:33,520 --> 00:14:37,360 Speaker 1: of those things. So for one, a lot of developers 226 00:14:37,440 --> 00:14:40,320 Speaker 1: cannot come to the market now. It is, like I said, 227 00:14:40,360 --> 00:14:43,520 Speaker 1: not Evergrand alone, because this is part of the making 228 00:14:43,640 --> 00:14:47,160 Speaker 1: of China's crackdown on the whole sector. But Evergrand being 229 00:14:47,360 --> 00:14:53,320 Speaker 1: the highest profile casualty is no doubt contributing to a 230 00:14:53,880 --> 00:14:56,840 Speaker 1: large part of this. And as I was saying, the 231 00:14:56,840 --> 00:15:00,440 Speaker 1: sectors no ball into require amount of default. What that 232 00:15:00,480 --> 00:15:03,840 Speaker 1: has led to is the yields in the secondary market 233 00:15:04,280 --> 00:15:07,880 Speaker 1: has become way too high. So they have not come 234 00:15:07,960 --> 00:15:12,240 Speaker 1: down a bit to around sixteen percent that previously reached 235 00:15:12,360 --> 00:15:16,040 Speaker 1: almost thirty percent. And that means if issuers want to 236 00:15:16,080 --> 00:15:18,640 Speaker 1: come to the primary market to borrow new debt, they 237 00:15:18,680 --> 00:15:21,600 Speaker 1: would need to pay that much or even more to 238 00:15:21,840 --> 00:15:24,760 Speaker 1: have an edge over the secondary market. And that is 239 00:15:24,800 --> 00:15:27,920 Speaker 1: just way too much, you know, way too expensive for 240 00:15:28,040 --> 00:15:31,760 Speaker 1: borers to come to this market again. So this sector 241 00:15:32,000 --> 00:15:35,920 Speaker 1: really used to be dominating, not just China, about Asia's 242 00:15:36,000 --> 00:15:41,520 Speaker 1: whole dollar bond issuance, and has shrunk a lot in 243 00:15:41,680 --> 00:15:45,840 Speaker 1: this past year. So that's part one that is issuers 244 00:15:45,880 --> 00:15:50,720 Speaker 1: are shot out of the market, and another one is 245 00:15:50,760 --> 00:15:53,200 Speaker 1: just yeah, like I said, there are a ton of 246 00:15:53,280 --> 00:15:57,920 Speaker 1: defaults and unresolved debt issues, and people are watching out 247 00:15:57,960 --> 00:16:00,960 Speaker 1: for these restructurings and watching to ever Grand because that 248 00:16:01,120 --> 00:16:05,080 Speaker 1: is led by government's efforts right now and suport looking 249 00:16:05,080 --> 00:16:07,560 Speaker 1: for a clue of how the government wants to resolve 250 00:16:07,600 --> 00:16:12,040 Speaker 1: all of these issues. Okay, that's very interesting. Investors in 251 00:16:12,080 --> 00:16:14,560 Speaker 1: these situations they often have quite a short memory. They 252 00:16:14,600 --> 00:16:16,320 Speaker 1: you know, they take a hit, they move on, they 253 00:16:16,360 --> 00:16:18,880 Speaker 1: come back because they want to invest in a huge 254 00:16:18,880 --> 00:16:24,080 Speaker 1: economy like China. You do we really think that Evergrand 255 00:16:24,320 --> 00:16:26,440 Speaker 1: is going to leave a lasting impression that there's going 256 00:16:26,440 --> 00:16:28,680 Speaker 1: to be something that China is not going to bounce 257 00:16:28,720 --> 00:16:32,120 Speaker 1: back from. That's hard to say. Today. Actually we're seeing 258 00:16:32,280 --> 00:16:36,440 Speaker 1: China's property market, um, I mean in terms of sales 259 00:16:36,920 --> 00:16:40,400 Speaker 1: are finally bounding back a little bit. Um. So that 260 00:16:40,520 --> 00:16:46,360 Speaker 1: is the latest data from February. However, for dollar bond investors, 261 00:16:46,600 --> 00:16:50,480 Speaker 1: I believe they will they will carry to his memory 262 00:16:50,480 --> 00:16:53,520 Speaker 1: with that's for how long, I'm not sure, but you know, 263 00:16:53,640 --> 00:16:58,240 Speaker 1: for one, if the companies really also depends on the 264 00:16:58,240 --> 00:17:02,760 Speaker 1: company's restructing plan. Right, is just going to extend its 265 00:17:02,760 --> 00:17:07,440 Speaker 1: debt for twelve years as we had reported previously, than 266 00:17:07,720 --> 00:17:10,600 Speaker 1: keep pointing to wait out those twelve years until they 267 00:17:10,600 --> 00:17:13,200 Speaker 1: can finally get their money back, And I bet they're 268 00:17:13,200 --> 00:17:15,879 Speaker 1: going to seem a matter of memory. Alice One of 269 00:17:15,920 --> 00:17:18,000 Speaker 1: Bloomberg News, thank you so much for joining us. This 270 00:17:18,080 --> 00:17:21,120 Speaker 1: is a fascinating story with broad implications, and we look 271 00:17:21,160 --> 00:17:23,280 Speaker 1: forward to reading all of your scoops on the Bloomberg 272 00:17:23,440 --> 00:17:26,880 Speaker 1: terminal and of course at Bloomberg dot com. Thank you 273 00:17:27,560 --> 00:17:30,080 Speaker 1: Switching gears here a bit. As I mentioned earlier, we 274 00:17:30,160 --> 00:17:33,840 Speaker 1: are very fortunate to have Mary Ellen Olsen from Bloomberg Intelligence, 275 00:17:33,880 --> 00:17:37,040 Speaker 1: also based in Hong Kong. Now, when we met a 276 00:17:37,040 --> 00:17:40,680 Speaker 1: few weeks ago, Mary Ellen, we talked a bit about India, 277 00:17:41,119 --> 00:17:43,040 Speaker 1: which has been in the news quite a bit because 278 00:17:43,040 --> 00:17:45,440 Speaker 1: of a Danny. Just to catch everyone up a bit. 279 00:17:45,680 --> 00:17:49,600 Speaker 1: Danny is an Indian ports to renewable energy conglomerate that 280 00:17:49,680 --> 00:17:52,920 Speaker 1: was accused of accounting fraud and stock manipulation and experienced 281 00:17:52,920 --> 00:17:57,040 Speaker 1: a big route in its stock hand bond prices. There's 282 00:17:57,040 --> 00:17:59,200 Speaker 1: a lot of concern now over whether it can repay 283 00:17:59,240 --> 00:18:02,000 Speaker 1: the debt. The news has really shone a light on 284 00:18:02,040 --> 00:18:04,880 Speaker 1: all Indian companies, the way they're structured and how they run. 285 00:18:05,600 --> 00:18:07,840 Speaker 1: But we're not here to talk about Donnie. Instead, we're 286 00:18:07,880 --> 00:18:11,600 Speaker 1: going to dig into another big Indian firm, Vedanta Resources, 287 00:18:11,920 --> 00:18:14,480 Speaker 1: which is a getting a lot of attention and involves 288 00:18:14,480 --> 00:18:18,879 Speaker 1: a highly also involves a highly leveled tycoon. So to 289 00:18:18,920 --> 00:18:21,359 Speaker 1: start with, I've got to ask Mary Ellen, is this 290 00:18:21,440 --> 00:18:24,760 Speaker 1: the next to Danny we're looking at here? Well, I 291 00:18:24,800 --> 00:18:29,000 Speaker 1: think there's some similarities between the two companies, but I 292 00:18:29,040 --> 00:18:32,320 Speaker 1: think Vedanta is starting from a much different point than 293 00:18:32,520 --> 00:18:37,280 Speaker 1: where we saw a Donnie's start. A Donnie's Sports company 294 00:18:37,359 --> 00:18:40,680 Speaker 1: is rated in the investment grade category in the low 295 00:18:40,800 --> 00:18:44,040 Speaker 1: triple B space, and of course Vedanta is rated in 296 00:18:44,080 --> 00:18:47,240 Speaker 1: the low single B space. So I think we can 297 00:18:47,320 --> 00:18:52,560 Speaker 1: expect that it has more governance issues, more liquidity and 298 00:18:52,680 --> 00:18:57,400 Speaker 1: financial risk than a Donnie to start with. So, just 299 00:18:57,440 --> 00:19:00,919 Speaker 1: to kind of set the state, I think it's starting 300 00:19:00,920 --> 00:19:05,240 Speaker 1: off from a weaker position I think the similarity similarities 301 00:19:05,280 --> 00:19:10,040 Speaker 1: between the two companies, however, do raise some some flags. 302 00:19:10,040 --> 00:19:13,200 Speaker 1: And I think the key similarities would be that they're 303 00:19:13,200 --> 00:19:17,560 Speaker 1: both you know, run by the promoter, which directs the 304 00:19:17,920 --> 00:19:22,240 Speaker 1: you know, the direction that the company goes in. They 305 00:19:22,240 --> 00:19:26,760 Speaker 1: both have very complex corporate structures and that can limit 306 00:19:27,000 --> 00:19:31,520 Speaker 1: transparency and also to some extent give rise to information risk. 307 00:19:32,359 --> 00:19:37,280 Speaker 1: And finally, the companies both have a lot of debt 308 00:19:37,440 --> 00:19:41,600 Speaker 1: and have used debt to grow their businesses. So I 309 00:19:41,640 --> 00:19:45,360 Speaker 1: think that in general there is some flags that can 310 00:19:45,359 --> 00:19:49,159 Speaker 1: be seen across both of the names. So we just 311 00:19:49,200 --> 00:19:52,360 Speaker 1: to back up. Let's let's talk about the company itself. 312 00:19:52,400 --> 00:19:55,679 Speaker 1: For those not familiar, what is Vadanta Resources? What do 313 00:19:55,720 --> 00:19:59,119 Speaker 1: they do? And you know why why why do we 314 00:19:59,160 --> 00:20:01,479 Speaker 1: care about them in terms of like the you know, 315 00:20:01,680 --> 00:20:07,840 Speaker 1: the Indian and the Asian commodity market. So the Danta 316 00:20:08,080 --> 00:20:13,640 Speaker 1: is a mining company. Its key industries are oil, aluminum, 317 00:20:13,800 --> 00:20:16,960 Speaker 1: and zinc. Those are what comprise the bulk of its 318 00:20:17,040 --> 00:20:20,880 Speaker 1: EBIATA generation. And I think that we care about them 319 00:20:20,880 --> 00:20:23,760 Speaker 1: in the US dollar bond space is because they've been 320 00:20:23,800 --> 00:20:27,959 Speaker 1: a heavy dollar bond issuer. At the moment, the holding 321 00:20:28,000 --> 00:20:33,080 Speaker 1: company has about five billion in dollar bonds outstanding, and 322 00:20:33,200 --> 00:20:37,360 Speaker 1: it does have liquidity risks, and people are worried about 323 00:20:37,440 --> 00:20:40,880 Speaker 1: whether or not they have the resources to pay the debt, 324 00:20:41,200 --> 00:20:44,960 Speaker 1: especially given the fact that their their debt maturity profile 325 00:20:45,560 --> 00:20:49,840 Speaker 1: is relatively short term. But the metals that you mentioned 326 00:20:49,840 --> 00:20:51,560 Speaker 1: and the set that they're in generally, I mean, that's 327 00:20:51,560 --> 00:20:53,639 Speaker 1: been a good, good one over the last few years, right, 328 00:20:53,680 --> 00:20:56,760 Speaker 1: the commodities have rallied, the metals have been in demand, 329 00:20:56,760 --> 00:20:59,439 Speaker 1: there's been a big boom. Why why would this company 330 00:20:59,440 --> 00:21:05,920 Speaker 1: not do well well? I think there's a story. Obviously, 331 00:21:05,920 --> 00:21:08,160 Speaker 1: with all high yield companies, I think there's a story. 332 00:21:08,840 --> 00:21:12,160 Speaker 1: And the story with this company really goes back to 333 00:21:12,359 --> 00:21:20,280 Speaker 1: its corporate structure. The US dollar bond bower and obligore 334 00:21:20,600 --> 00:21:24,160 Speaker 1: is Vedanta Resources, so that sits at the top of 335 00:21:24,200 --> 00:21:28,800 Speaker 1: the corporate structure. But it's not an operating company. So 336 00:21:28,840 --> 00:21:31,960 Speaker 1: even though it has all that, it doesn't have any 337 00:21:32,240 --> 00:21:37,640 Speaker 1: operations itself. So it relies on the upstream of dividends 338 00:21:37,680 --> 00:21:42,560 Speaker 1: from its subsidiaries. So its core subsidiary is Vedanta Limited 339 00:21:42,640 --> 00:21:46,840 Speaker 1: and it owns about seventy percent of that and Vedanta 340 00:21:46,920 --> 00:21:50,359 Speaker 1: Limited owns one hundred percent of the oil and gas 341 00:21:50,359 --> 00:21:54,160 Speaker 1: assets and they account for about twenty five percent of EBIDA, 342 00:21:55,480 --> 00:22:00,120 Speaker 1: and Vedanta Limited owns sixty five percent of the zinc assets, 343 00:22:00,119 --> 00:22:04,080 Speaker 1: which account for about fifty percent of EBIDA, and then 344 00:22:04,320 --> 00:22:08,159 Speaker 1: it owns about fifty one percent of the aluminum company, 345 00:22:08,280 --> 00:22:12,000 Speaker 1: which is about fifteen percent of EBIDA. So you've got 346 00:22:12,000 --> 00:22:14,680 Speaker 1: to keep in mind that all these subsidiary companies they 347 00:22:14,720 --> 00:22:18,119 Speaker 1: also have debt and they also have you know, capex 348 00:22:18,160 --> 00:22:21,000 Speaker 1: needs that they need to fund. So what's left over 349 00:22:21,160 --> 00:22:25,159 Speaker 1: is then you know, what can be upstreamed to eventually 350 00:22:25,200 --> 00:22:28,960 Speaker 1: to the Danta resources to cover the obligations there. So 351 00:22:29,200 --> 00:22:33,960 Speaker 1: that complexity creates a problem in terms of the efficiency 352 00:22:34,240 --> 00:22:38,119 Speaker 1: of you know, cash flows throughout the corporate structure to 353 00:22:38,119 --> 00:22:42,640 Speaker 1: to repay all of the obligations. So can it means 354 00:22:43,840 --> 00:22:47,479 Speaker 1: repents and how does it do that? Well, Um, you know, 355 00:22:47,600 --> 00:22:50,960 Speaker 1: it has some levers that it can pull. It's it's 356 00:22:51,000 --> 00:22:54,439 Speaker 1: primary level lever has been over the past several months, 357 00:22:54,480 --> 00:22:59,679 Speaker 1: the dividend upstreams, particularly from the zinc subsidiary, which is 358 00:23:00,160 --> 00:23:04,040 Speaker 1: cash risk rich. Um. In addition to that, it has 359 00:23:04,080 --> 00:23:07,920 Speaker 1: some nominal fees that it can assess on its subsidiaries 360 00:23:07,960 --> 00:23:10,560 Speaker 1: and it can bring those moneys up to the holding company, 361 00:23:11,400 --> 00:23:14,840 Speaker 1: and of course it can also rely on new funding 362 00:23:16,720 --> 00:23:20,680 Speaker 1: from from banks, either domestic banks or international banks. So 363 00:23:20,720 --> 00:23:24,320 Speaker 1: those are the key levers that they're looking at at 364 00:23:24,359 --> 00:23:27,520 Speaker 1: the moment. They actually came out today saying that they 365 00:23:27,520 --> 00:23:33,120 Speaker 1: were looking at raising about one point eight billion from 366 00:23:33,200 --> 00:23:38,160 Speaker 1: banks and were in advanced negotiations in that regard at 367 00:23:38,160 --> 00:23:42,280 Speaker 1: the moment, although they did not really name any counterparties 368 00:23:42,400 --> 00:23:45,680 Speaker 1: or disclose any time frames that they're looking for foreign 369 00:23:45,720 --> 00:23:49,480 Speaker 1: investors in that they didn't really specify the banks, but 370 00:23:49,600 --> 00:23:51,680 Speaker 1: the sense is that some of that would come from 371 00:23:51,720 --> 00:23:55,119 Speaker 1: domestic and they're also looking at some international banks. Okay, 372 00:23:55,320 --> 00:23:58,040 Speaker 1: but based on the yields right now in the dollar market, 373 00:23:58,040 --> 00:24:00,520 Speaker 1: would they have too they be able to get an 374 00:24:00,520 --> 00:24:03,560 Speaker 1: affordable rates on that that remains to be seen. Um. 375 00:24:03,680 --> 00:24:07,080 Speaker 1: Certainly their you know, their bonds themselves are yielding in 376 00:24:07,119 --> 00:24:11,000 Speaker 1: the double digit territory, and press reports a couple of 377 00:24:11,000 --> 00:24:14,639 Speaker 1: weeks ago did indicate that the potential funding for the 378 00:24:14,760 --> 00:24:19,120 Speaker 1: company was was quite high. But previously the company has 379 00:24:19,240 --> 00:24:24,680 Speaker 1: shown a willingness to finance at pretty high rates. Back 380 00:24:24,720 --> 00:24:28,520 Speaker 1: in twenty twenty one, they issued US dollar debt at 381 00:24:28,600 --> 00:24:33,680 Speaker 1: at about thirteen percent or over so they do show 382 00:24:33,760 --> 00:24:37,760 Speaker 1: an ability to to bring in funds even if they 383 00:24:37,760 --> 00:24:40,560 Speaker 1: have to pay high rates. And that yield you mentioned, 384 00:24:40,560 --> 00:24:42,400 Speaker 1: I mean, to what extent do you think that's influenced 385 00:24:42,400 --> 00:24:45,679 Speaker 1: by the situation at A Donnie at the moment, you know, 386 00:24:45,720 --> 00:24:49,280 Speaker 1: I don't. I don't think that there has been a 387 00:24:49,400 --> 00:24:53,679 Speaker 1: huge impact just because the starting rates, um, you know, 388 00:24:53,800 --> 00:24:58,119 Speaker 1: pre the Hindenburg report on a Donnie, we're pretty high. 389 00:24:58,160 --> 00:25:00,560 Speaker 1: You know, right now they're in the double digits. They 390 00:25:00,560 --> 00:25:04,080 Speaker 1: were there then as well. Where I've seen more of 391 00:25:04,080 --> 00:25:07,720 Speaker 1: a crossover impact probably would be on the stock prices, 392 00:25:07,800 --> 00:25:11,240 Speaker 1: which took a dive just this week. They were down 393 00:25:11,280 --> 00:25:15,440 Speaker 1: I think up to twenty no, about ten percent this week, 394 00:25:17,680 --> 00:25:20,920 Speaker 1: and that kind of coincided with all this rhetoric coming 395 00:25:20,960 --> 00:25:25,280 Speaker 1: out comparing Vedanta and Donnie. And of course here before 396 00:25:25,480 --> 00:25:29,800 Speaker 1: the stockholders had been receiving good dividends because of all 397 00:25:29,840 --> 00:25:32,920 Speaker 1: these upstreams. But I think this idea that there's a 398 00:25:33,760 --> 00:25:38,600 Speaker 1: contagent risk feeding into Vedanti helped push the stock prices. 399 00:25:38,680 --> 00:25:41,600 Speaker 1: So I've seen more of an impact probably in the 400 00:25:41,680 --> 00:25:45,680 Speaker 1: stock than in the bonds. That at least I can discern. Okay, 401 00:25:45,720 --> 00:25:47,800 Speaker 1: they already have a very low credit rating, right, do 402 00:25:47,800 --> 00:25:51,920 Speaker 1: we expect more downgrades in the next few weeks. Well, so, 403 00:25:51,960 --> 00:25:55,240 Speaker 1: at the moment, the SMP is the only company that 404 00:25:55,320 --> 00:25:59,240 Speaker 1: officially rates Vedanni, and they rate it at B minus 405 00:25:59,800 --> 00:26:03,840 Speaker 1: and they have a stable outlook. Moodies did rate the company, 406 00:26:04,040 --> 00:26:10,800 Speaker 1: but Danta reportedly withdrew the contract after Moodies downgraded them 407 00:26:10,880 --> 00:26:15,840 Speaker 1: to the triple C category on liquidity risks, and SMP 408 00:26:16,000 --> 00:26:18,800 Speaker 1: has said that the rating could come under pressure if 409 00:26:18,840 --> 00:26:21,960 Speaker 1: they don't make progress in getting some financing in the 410 00:26:22,000 --> 00:26:25,800 Speaker 1: door in a timely fashion. And as a rule of thumb, 411 00:26:25,880 --> 00:26:30,360 Speaker 1: I think the rating agencies like to see you an 412 00:26:30,400 --> 00:26:33,640 Speaker 1: answer for how they're going to repay debt anywhere from 413 00:26:33,720 --> 00:26:36,800 Speaker 1: three to six months before the debt matures, so they're 414 00:26:36,840 --> 00:26:40,480 Speaker 1: coming up to that benchmark. They do have bonds that 415 00:26:40,600 --> 00:26:46,080 Speaker 1: mature in April and May this year, so the agent 416 00:26:46,200 --> 00:26:49,679 Speaker 1: and then again in January twenty twenty four. So I 417 00:26:49,720 --> 00:26:51,840 Speaker 1: would expect that in the next couple of weeks the 418 00:26:51,920 --> 00:26:56,000 Speaker 1: rating agency would have to follow up on its indication 419 00:26:56,240 --> 00:27:02,200 Speaker 1: about where it sees the financing coming from and making 420 00:27:02,240 --> 00:27:04,960 Speaker 1: a decision about whether or not they need to change 421 00:27:04,960 --> 00:27:08,199 Speaker 1: the rating. One of them has a triple C that's um. 422 00:27:08,359 --> 00:27:09,680 Speaker 1: You know, if you read the small print of the 423 00:27:09,760 --> 00:27:14,320 Speaker 1: rating agencies reports, that implies very high probability of default. 424 00:27:15,119 --> 00:27:18,560 Speaker 1: Is that what we're expecting? Well, I think that that's 425 00:27:18,600 --> 00:27:20,840 Speaker 1: you know, again, this is a high yale company, and 426 00:27:20,880 --> 00:27:25,880 Speaker 1: there's always stories with these companies, and Danta has been 427 00:27:26,040 --> 00:27:29,159 Speaker 1: here before. It has had a triple C rating before 428 00:27:29,160 --> 00:27:34,119 Speaker 1: and has pulled out of it. And I think, you know, 429 00:27:34,200 --> 00:27:36,920 Speaker 1: at the moment, the company is still saying that it 430 00:27:37,000 --> 00:27:39,280 Speaker 1: is speaking to banks, and I don't think that we 431 00:27:39,400 --> 00:27:43,960 Speaker 1: can totally discount that even though they have not really 432 00:27:44,440 --> 00:27:50,560 Speaker 1: produced anything concrete at the moment. I think one of 433 00:27:50,600 --> 00:27:53,440 Speaker 1: the things that's in the company's favor is that they 434 00:27:53,480 --> 00:27:58,800 Speaker 1: do have some time to play with. They can upstream dividends, 435 00:27:58,920 --> 00:28:03,960 Speaker 1: and SMP confirm that in their view, they could probably 436 00:28:04,000 --> 00:28:07,280 Speaker 1: fund the debt repayments through the end of June through 437 00:28:07,320 --> 00:28:10,720 Speaker 1: these dividend upstreams and other fees that the company could 438 00:28:10,760 --> 00:28:17,280 Speaker 1: get in. So even if SMP does change its outlook 439 00:28:17,359 --> 00:28:19,960 Speaker 1: or it's rating on the company, it still has some 440 00:28:20,040 --> 00:28:22,520 Speaker 1: time to play with before there would be a danger 441 00:28:22,640 --> 00:28:28,119 Speaker 1: of a default. And given the company's pass track record 442 00:28:28,320 --> 00:28:31,320 Speaker 1: in you know, coming up with a solution. I think 443 00:28:31,320 --> 00:28:34,399 Speaker 1: that that would be what's on everybody's mind. What can 444 00:28:34,440 --> 00:28:38,640 Speaker 1: they do to turn this around in the absence of 445 00:28:38,880 --> 00:28:42,560 Speaker 1: additional bank funding. But it does seem at the moment 446 00:28:42,560 --> 00:28:45,000 Speaker 1: that that is what they're focused in on and what 447 00:28:45,120 --> 00:28:49,040 Speaker 1: they're hoping to target in the near term. Okay, but 448 00:28:49,080 --> 00:28:51,080 Speaker 1: they could also sell some assets right when they have 449 00:28:51,160 --> 00:28:54,239 Speaker 1: things like Zinc International. They've been trying to get rid 450 00:28:54,280 --> 00:28:57,800 Speaker 1: of what's going on there, so that so the sale 451 00:28:57,920 --> 00:29:02,480 Speaker 1: of Zinc International would be would have a profound and 452 00:29:02,600 --> 00:29:06,120 Speaker 1: material impact on their liquidity if if it were to happen, 453 00:29:06,200 --> 00:29:09,480 Speaker 1: and it does look as though that's being sidetracked at 454 00:29:09,480 --> 00:29:15,480 Speaker 1: the moment due to government objection. So what's happening is 455 00:29:15,800 --> 00:29:21,760 Speaker 1: Zinc International are the African assets of um Vedanta Limited, 456 00:29:21,800 --> 00:29:24,680 Speaker 1: which which are wholly owned, and they are trying to 457 00:29:24,720 --> 00:29:30,640 Speaker 1: sell those assets to their sixty five percent owned Hindustand Zinc, 458 00:29:31,200 --> 00:29:34,280 Speaker 1: which is the cash which company, and that would in 459 00:29:34,320 --> 00:29:37,720 Speaker 1: effect help transfer or pull about three billion out of 460 00:29:37,840 --> 00:29:42,040 Speaker 1: Hindustan Zinc up to the Vedanta Limited level, which could 461 00:29:42,080 --> 00:29:47,120 Speaker 1: then be upstreamed more readily to the holding company to 462 00:29:47,160 --> 00:29:52,560 Speaker 1: help support its liquidity needs, so that that actually would 463 00:29:52,560 --> 00:29:55,840 Speaker 1: have been a helpful transaction. But again it does look 464 00:29:55,880 --> 00:29:59,959 Speaker 1: as though the government has objected to it, and even 465 00:30:00,080 --> 00:30:02,280 Speaker 1: Fidanta itself has kind of stepped back and said that 466 00:30:02,320 --> 00:30:05,960 Speaker 1: they need to get shareholder approval in order for that 467 00:30:06,040 --> 00:30:11,000 Speaker 1: transaction to go forward. And the government is a shareholder, 468 00:30:11,400 --> 00:30:18,000 Speaker 1: why does the government object? I think there's a couple 469 00:30:18,040 --> 00:30:20,720 Speaker 1: of different things that have come out in the press. 470 00:30:21,680 --> 00:30:24,760 Speaker 1: In general, I think there's been some concern on the 471 00:30:24,840 --> 00:30:29,440 Speaker 1: valuations that perhaps they're too high. I think also, you know, 472 00:30:29,480 --> 00:30:33,480 Speaker 1: it's a related party transaction and you know, the shareholder interest, 473 00:30:33,760 --> 00:30:35,480 Speaker 1: you have to make sure that they're being you know, 474 00:30:35,560 --> 00:30:41,800 Speaker 1: wholly met. From my perspective, the transfer of the Zinc 475 00:30:41,840 --> 00:30:46,560 Speaker 1: International assets, you know what, they do require some CAPEX 476 00:30:46,640 --> 00:30:50,480 Speaker 1: investment for growth, so that could be a drag potentially 477 00:30:51,400 --> 00:30:57,479 Speaker 1: on the consolidated company. And the final consideration is just 478 00:30:57,560 --> 00:31:01,960 Speaker 1: the government itself, the Indian government, it has divestment targets 479 00:31:02,040 --> 00:31:05,840 Speaker 1: to meet under its budget and it was planning on 480 00:31:05,960 --> 00:31:14,360 Speaker 1: divesting a piece of Hindustan Zinc. When the announcement came 481 00:31:14,360 --> 00:31:17,400 Speaker 1: out from Vedanta about the asset sale, the share price 482 00:31:17,520 --> 00:31:22,280 Speaker 1: did drop on Hindustan Zinc, so that also could have 483 00:31:22,320 --> 00:31:27,360 Speaker 1: affected the government's view of the transaction. So those are 484 00:31:27,360 --> 00:31:29,600 Speaker 1: some of the things that you know, have kind of 485 00:31:29,600 --> 00:31:31,640 Speaker 1: been in the press or I've been thinking about about 486 00:31:31,640 --> 00:31:35,720 Speaker 1: why the government could be objecting. Okay, you mentioned levers 487 00:31:35,720 --> 00:31:37,280 Speaker 1: at the beginning of There any other levels that the 488 00:31:37,280 --> 00:31:40,880 Speaker 1: company can pull I think I think you mentioned one 489 00:31:40,960 --> 00:31:45,200 Speaker 1: in terms of asset sales. They have spoken in the 490 00:31:45,200 --> 00:31:49,920 Speaker 1: past about potentially selling down pieces of their steel business 491 00:31:50,160 --> 00:31:54,560 Speaker 1: or even some of their copper business. But the question 492 00:31:54,600 --> 00:31:58,040 Speaker 1: there is on you know, timeliness, you know, because those 493 00:31:58,080 --> 00:32:01,600 Speaker 1: things may not happen within a time frame that could 494 00:32:01,640 --> 00:32:06,640 Speaker 1: meet their liquidity needs. Previously they talked about selling down 495 00:32:06,720 --> 00:32:11,840 Speaker 1: pieces of their listed companies, but you know, that could 496 00:32:11,880 --> 00:32:15,840 Speaker 1: be more problematic in terms of you know, uh, opening 497 00:32:15,920 --> 00:32:19,920 Speaker 1: up new shareholders, which could create some some leakage from 498 00:32:20,160 --> 00:32:27,320 Speaker 1: dividend distributions. And another avenue would be intercompany loans, although 499 00:32:27,320 --> 00:32:29,800 Speaker 1: the government but the company has said that they're not 500 00:32:29,880 --> 00:32:32,960 Speaker 1: really interested in doing or what wouldn't do those anymore 501 00:32:33,040 --> 00:32:35,520 Speaker 1: previously and some of the calls that they've had, But um, 502 00:32:35,920 --> 00:32:39,960 Speaker 1: I suppose that could be another avenue. You mentioned the 503 00:32:40,160 --> 00:32:42,760 Speaker 1: very high yields that they're paying. Do you think investors 504 00:32:42,760 --> 00:32:45,680 Speaker 1: are being compensated for the risks here. Well, I mean, 505 00:32:46,040 --> 00:32:48,520 Speaker 1: I guess that there's a you know, a right price 506 00:32:48,600 --> 00:32:53,320 Speaker 1: for for every every Bondum. Certainly, I think that they're 507 00:32:53,320 --> 00:32:56,200 Speaker 1: factoring a lot of the risks, and I think that 508 00:32:56,560 --> 00:32:59,760 Speaker 1: at the moment, you know, there's there's plenty of people 509 00:32:59,760 --> 00:33:04,000 Speaker 1: out there that are on both sides of the fences 510 00:33:04,040 --> 00:33:07,120 Speaker 1: about whether or not the government is going. Um. Sorry 511 00:33:07,120 --> 00:33:09,000 Speaker 1: I keep saying the government the company can pay or 512 00:33:09,080 --> 00:33:12,840 Speaker 1: not pay m But I guess that remains to be seen. 513 00:33:13,120 --> 00:33:16,920 Speaker 1: You know, if they if they come through with the liquidity, 514 00:33:17,200 --> 00:33:19,480 Speaker 1: you know, the financing, and we're able to resolve their 515 00:33:19,480 --> 00:33:23,600 Speaker 1: liquidity issues, then some people will benefit for sure. And 516 00:33:23,640 --> 00:33:25,000 Speaker 1: You've been looking at this company for a long time, 517 00:33:25,040 --> 00:33:26,760 Speaker 1: and I'm glad, I'm glad you raised the point that 518 00:33:27,320 --> 00:33:29,600 Speaker 1: they are not. This is not the first time that 519 00:33:29,640 --> 00:33:32,320 Speaker 1: they've been in the situation. You know, the owner has 520 00:33:32,400 --> 00:33:36,040 Speaker 1: faced the liquidity woes in the past. He has always 521 00:33:36,080 --> 00:33:39,000 Speaker 1: managed to get the money and pay on time. Um, 522 00:33:39,320 --> 00:33:41,920 Speaker 1: what's different about it this time around? I think the 523 00:33:42,400 --> 00:33:46,720 Speaker 1: big difference, um, would be that there's probably a few 524 00:33:46,760 --> 00:33:49,880 Speaker 1: more doors that are closed so that they do have 525 00:33:50,000 --> 00:33:52,360 Speaker 1: to in the near term, perhaps lean a little bit 526 00:33:52,440 --> 00:33:56,600 Speaker 1: more heavily on the banks um and I guess I'm 527 00:33:56,600 --> 00:34:00,120 Speaker 1: talking about just market access. Given the state of the 528 00:34:00,120 --> 00:34:03,120 Speaker 1: the bond market at the moment, especially for high yeld issuers, 529 00:34:03,160 --> 00:34:05,840 Speaker 1: we have not seen a lot of issue WinCE and 530 00:34:05,920 --> 00:34:10,200 Speaker 1: it doesn't seem a likely avenue for Vedanta to refinance 531 00:34:10,280 --> 00:34:15,400 Speaker 1: in at the moment. We already talked about, you know, HCl. 532 00:34:15,480 --> 00:34:17,600 Speaker 1: I think that that, you know, gave a lot of 533 00:34:17,600 --> 00:34:20,759 Speaker 1: people a lot of hope, but that avenue seems to 534 00:34:20,800 --> 00:34:26,600 Speaker 1: have been shut down by the government objection. And previously 535 00:34:26,600 --> 00:34:29,719 Speaker 1: you had a situation where they were hoping to privatize 536 00:34:29,760 --> 00:34:34,920 Speaker 1: Videnta Limited. They've been down that road and have increased 537 00:34:34,920 --> 00:34:37,400 Speaker 1: their stake, but I'm not sure that you know, they 538 00:34:37,440 --> 00:34:41,719 Speaker 1: would renew that at any time in the near term. 539 00:34:41,800 --> 00:34:44,320 Speaker 1: So it seems like they have a few more doors 540 00:34:44,360 --> 00:34:50,040 Speaker 1: that have closed on them, at least unless unless they're 541 00:34:50,080 --> 00:34:53,520 Speaker 1: able to come up with some new ideas. Okay, great, 542 00:34:53,560 --> 00:34:56,120 Speaker 1: we'll definitely be watching with a lot of interest. We'll 543 00:34:56,160 --> 00:34:57,960 Speaker 1: read your analysis. Have it done to in All Things 544 00:34:57,960 --> 00:35:01,439 Speaker 1: Asia Commodities and thank you how much, Mary Ann Mary 545 00:35:01,440 --> 00:35:04,920 Speaker 1: Ellen Olson of Bloomberg Intelligence. You can read all of 546 00:35:04,960 --> 00:35:08,439 Speaker 1: Mary Ellen's analysis on the Bloomberg Terminal, and thanks again 547 00:35:08,440 --> 00:35:11,120 Speaker 1: to Alice Huang from Bloomberg News. Read all of her 548 00:35:11,200 --> 00:35:14,720 Speaker 1: scoops on the terminal and at Bloomberg dot Com. Definitely 549 00:35:14,760 --> 00:35:16,960 Speaker 1: keep an eye on that evergrand story, Alison. Her team 550 00:35:16,960 --> 00:35:18,680 Speaker 1: will continue to break a lot of news there over 551 00:35:18,719 --> 00:35:21,880 Speaker 1: the coming weeks. I'm James Crombie. It's been a pleasure 552 00:35:21,880 --> 00:35:24,239 Speaker 1: having you. See you next week on the Credit Edge.