WEBVTT - China’s Mega Restructure; Trouble in India 0:00:07.680 --> 0:00:10.800 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:11.240 --> 0:00:14.000 My name is James Crumbie. I'm a senior editor at Bloomberg. 0:00:14.520 --> 0:00:17.960 Today's guests so Alice Wong, who covers China's credit markets 0:00:17.960 --> 0:00:20.440 for Bloomberg News from Hong Kong. She's been all over 0:00:20.480 --> 0:00:22.439 the biggest scoops from that region. We're delighted to have 0:00:22.520 --> 0:00:24.720 you on the show. Thank you for having me to. 0:00:25.280 --> 0:00:27.680 We're also very happy to welcome Mary Ellen Olsen, who 0:00:27.680 --> 0:00:31.520 looks at commodity producers throughout Asia for Bloomberg Intelligence, also 0:00:31.600 --> 0:00:34.280 based in Hong Kong. Thanks for having me. We'll be 0:00:34.280 --> 0:00:36.519 discussing a big Indian story with her in a bit. 0:00:36.960 --> 0:00:38.960 Spoiler alert, it's not a danny that it could be 0:00:39.000 --> 0:00:42.120 heading that way. Before we get to that, Alice, what's 0:00:42.120 --> 0:00:44.239 the mood in Hong Kong right now? I was there 0:00:44.240 --> 0:00:46.479 a few weeks ago and everyone was still wearing masks 0:00:46.479 --> 0:00:49.040 in the street. Anyone who didn't risk the hefty fine 0:00:49.680 --> 0:00:52.560 the whole worlds now is betting on a big China reopening. 0:00:52.760 --> 0:00:56.360 What's the story there? Yeah, I mean personally, I'm definitely 0:00:56.360 --> 0:00:58.840 a very excited. No, but you know what surpride new 0:00:58.960 --> 0:01:02.880 is after all, almost a thousand days of the mask 0:01:03.000 --> 0:01:07.160 mandate and now the government dropping it. Actually, most people 0:01:07.200 --> 0:01:09.959 still choose to wear a mask, so we actually had 0:01:09.959 --> 0:01:13.400 a story on that today about walk out on the street, 0:01:13.480 --> 0:01:15.840 and most people are still wearing it. But I think 0:01:15.880 --> 0:01:20.600 the market is very excited about Chinese and Hong Kong 0:01:20.600 --> 0:01:23.800 government opening out. So you can see all the markets 0:01:23.880 --> 0:01:27.919 are turning up in the region here today. Very interesting. 0:01:27.959 --> 0:01:29.840 Let's hope it keeps moving in that direction. And I 0:01:29.880 --> 0:01:31.880 really do look forward to getting back to Hong Kong. 0:01:32.319 --> 0:01:36.720 What great city. So Alice, let's talk ever Grand. But 0:01:36.840 --> 0:01:39.679 before we dig into the credit story for listeners maybe 0:01:39.680 --> 0:01:42.720 not familiar, what is it? Why do we care? And 0:01:42.720 --> 0:01:45.639 why has it dominated the headlines in Asia and around 0:01:45.680 --> 0:01:48.600 the world for so long? Yeah? What is ever Grand 0:01:49.040 --> 0:01:51.520 and why do we care about? The story? So the 0:01:51.720 --> 0:01:55.440 sheer size of it that should be enough to catch 0:01:56.040 --> 0:02:00.400 reader's attention and listeners. In this case, this is the 0:02:00.480 --> 0:02:04.760 company that was founded in nineteen ninety six and just 0:02:04.960 --> 0:02:09.200 like a lot of other developers in China, property developers 0:02:09.200 --> 0:02:13.440 in China, IF relied heavily on borrowing to feel its growth, 0:02:13.600 --> 0:02:18.080 and dollar bombs is among them. So it had about 0:02:18.120 --> 0:02:22.760 one point ninety seven trillion yen that is two hundred 0:02:22.760 --> 0:02:26.880 and eighty seven billion US dollars in liabilities as of 0:02:27.000 --> 0:02:30.760 June twenty twenty. First, that is the most among its 0:02:30.760 --> 0:02:35.560 developer peers in China. It also was the largest dollar 0:02:35.639 --> 0:02:39.320 debt borrower among its peers. So what happens when it 0:02:39.360 --> 0:02:43.840 really carries broader implications for the whole dollar bond market 0:02:43.840 --> 0:02:47.800 in the region as well as China's nearly sixty trillion 0:02:47.880 --> 0:02:53.959 US dollar financial system, and it has defaulted in It 0:02:54.080 --> 0:02:57.320 defaulted in his US dollar bob in late twenty twenty 0:02:57.480 --> 0:03:04.320 First Fastful, We're now in March twenty twenty three, and 0:03:05.800 --> 0:03:10.519 creditors are still not see in concrete progress on this 0:03:10.680 --> 0:03:15.800 debt restructuring. So that is why it's still dominating that lie, 0:03:16.320 --> 0:03:21.080 you know, because people are paying attention to debt restructuring progress. 0:03:21.080 --> 0:03:27.239 And also Everground's restructuring will set examples for other real 0:03:27.400 --> 0:03:32.200 estate firms from the nation. The sector has snowballed into 0:03:32.680 --> 0:03:36.080 record amount of default from once being one of the 0:03:36.160 --> 0:03:40.640 hardest bomb markets in the world. And Everground's own restructuring 0:03:40.680 --> 0:03:45.040 will be China's largest ever and it is only the 0:03:45.080 --> 0:03:48.040 only restructuring that's going on in the sector right now. 0:03:48.200 --> 0:03:52.720 That is carried out by dominated by the government. So 0:03:52.840 --> 0:03:56.000 let's just back up. The Everground is a property developer. 0:03:56.040 --> 0:03:58.720 They make property. Surely that's a good business to be in. 0:03:58.800 --> 0:04:01.840 It's a huge population, there's a need for housing in China. 0:04:01.880 --> 0:04:03.960 What's what's going Why can't they why can't they pay 0:04:04.000 --> 0:04:09.240 their debt? Yeah, so let's talk about that first. How 0:04:09.360 --> 0:04:11.520 you know, it's a private developer in China. It's one 0:04:11.520 --> 0:04:14.120 of the largest. It owns. It says it owns more 0:04:14.160 --> 0:04:19.760 than one thousand projects across almost three hundred cities in China. 0:04:19.960 --> 0:04:24.080 UM and really it's problems started in twenty twenty one. 0:04:24.120 --> 0:04:27.120 It had in liquidity scare and then it's that it's 0:04:27.160 --> 0:04:31.400 going to outline a problem to solve its liquidity issue. 0:04:32.120 --> 0:04:36.920 But at that time China wanted to address UM the 0:04:37.000 --> 0:04:41.320 overleveraged problem that has been existing in this sector for 0:04:41.440 --> 0:04:45.520 a long time. UM and that is essentially what's happened. 0:04:45.600 --> 0:04:48.400 You know, this is not an issue that is only 0:04:48.440 --> 0:04:52.760 belonging to everigrants. All of them are under the government's 0:04:52.880 --> 0:04:57.600 regulatory crackdown. So all of them had run into the 0:04:57.720 --> 0:05:01.640 regulatory tightening. And again that is not happening only with 0:05:01.880 --> 0:05:04.640 the real estate sector. Either China has cracked down or 0:05:04.920 --> 0:05:08.360 as we have seen on the education sector as well 0:05:08.400 --> 0:05:13.600 as the technology sector. So China's housing markets began to 0:05:13.600 --> 0:05:18.159 slow down because the government don't want people to the 0:05:18.320 --> 0:05:23.920 government's chanting slogan. Slogan is housing is for is not 0:05:23.960 --> 0:05:26.919 for speculation, So they don't want you to speculate on 0:05:27.000 --> 0:05:30.120 buying anymore. Um And we also know what happened during 0:05:30.120 --> 0:05:33.840 the pandemic. China's economy is not growing as fast as 0:05:33.880 --> 0:05:37.599 it used to be um And China's population is also 0:05:37.800 --> 0:05:40.000 shrinking now for the first time in a long time. 0:05:40.680 --> 0:05:43.920 Um And so there's the demound size of or shrinking. 0:05:44.000 --> 0:05:48.840 So all of those components adding up together right now 0:05:48.960 --> 0:05:52.120 is a hard time for China's real estate sector. So 0:05:52.160 --> 0:05:54.280 they built too much, They browed too much money, They 0:05:54.760 --> 0:05:57.240 built the wrong kind of housing. What was wrong with 0:05:57.279 --> 0:06:00.520 the business model? Yeah, like you know, you pointed out exactly, 0:06:01.360 --> 0:06:05.320 they borrow too much. They rely too heavily on borrowing 0:06:05.440 --> 0:06:10.040 to fund its growth. And it's been a lot of 0:06:10.120 --> 0:06:13.400 borrowing in a very short amount of time that is 0:06:13.440 --> 0:06:18.240 really posing risks to the whole nation's financial system. That's 0:06:18.279 --> 0:06:20.880 why China wanted to crack down on it. So they 0:06:20.920 --> 0:06:25.400 have how much debt? Well, I just mentioned ever, grind 0:06:25.440 --> 0:06:31.120 alone has over two hundred eighty billion US dollars in 0:06:31.240 --> 0:06:34.360 liabilities as of June twenty twenty first, and that's this 0:06:34.480 --> 0:06:37.960 company alone. Yeah, and what's the latest situation with them 0:06:37.960 --> 0:06:40.560 trying to figure that out? They're in the restructuring. What 0:06:40.640 --> 0:06:43.880 are the key dates we're looking for here? Yeah, they're 0:06:43.880 --> 0:06:47.640 in the restructuring. And what's really refrustrating for people is 0:06:47.920 --> 0:06:52.320 it has promised timeline and debtline over and over again 0:06:52.880 --> 0:06:56.360 and it has failed to deliver on them over and 0:06:56.440 --> 0:06:59.359 over again. So the next date that we are watching 0:06:59.400 --> 0:07:04.239 for really is March twenties. It's a court hearing date. 0:07:05.240 --> 0:07:09.440 And last time at the court's hearing which has been 0:07:09.480 --> 0:07:12.720 adjoined to March twenties, every grant had promised the judge 0:07:13.160 --> 0:07:17.960 that it will present a plan and have creditors support 0:07:18.520 --> 0:07:21.200 by early March, and we know, we know now is 0:07:21.240 --> 0:07:26.320 March first, and that is nowhere to be seen. So yeah, 0:07:26.400 --> 0:07:29.280 those are the key dates that we're watching for right now. 0:07:29.880 --> 0:07:32.840 And the back up, just let me go back a 0:07:32.880 --> 0:07:36.520 little bit on this lawsuit that I'm talking about so 0:07:36.640 --> 0:07:40.840 what's called is it's a winding up lawsuit. We have 0:07:40.960 --> 0:07:45.560 seen several developers creditors use this strategy in Hong Kong 0:07:45.640 --> 0:07:48.520 Core in the past few months. That is, essentially, when 0:07:48.600 --> 0:07:52.040 the company owes a certain amount of money that has 0:07:52.080 --> 0:07:55.080 not paid, the creditor can go to court and said 0:07:55.400 --> 0:07:57.880 this and say, this company owes me debt that is 0:07:57.920 --> 0:08:01.960 not paying me. I want to plan it to be insolvent. 0:08:02.360 --> 0:08:06.040 I wanted to go into liquidation, sell its assets, and 0:08:06.080 --> 0:08:11.600 repaying is dead. So many creditors have taken up this approach. 0:08:13.840 --> 0:08:18.000 It's not ideal because if a company actually goes into liquidation, 0:08:18.840 --> 0:08:22.760 it needs to fire sell its assets, and you know, 0:08:22.800 --> 0:08:25.040 creditors will get their money. But that is not the 0:08:25.080 --> 0:08:27.520 result that everyone wants. Someone just wants some of them 0:08:27.600 --> 0:08:31.440 just wants a better recovery. And so everyone is now 0:08:31.480 --> 0:08:36.160 in this lawsuit and it has repeatedly adjourned its hearings 0:08:36.360 --> 0:08:41.360 and delayed presenting a restructuring plant. It keeps telling the 0:08:41.400 --> 0:08:44.160 Core I'm working on a plan, but it's just not 0:08:44.400 --> 0:08:49.160 presenting it. Do we know what's holding things up? Yeah? Actually, 0:08:49.760 --> 0:08:53.200 so there are a few things that the company is 0:08:54.280 --> 0:08:58.840 having disagreements with a major group of dollar bond holders 0:08:58.840 --> 0:09:03.199 over that we have learned from sources UM, so we 0:09:03.640 --> 0:09:07.440 may get into a bit of litergree details here. UM. 0:09:07.720 --> 0:09:10.240 The source has told us before that every ground has 0:09:10.320 --> 0:09:14.600 presented two solutions. The first one is to just extend 0:09:14.640 --> 0:09:18.240 the debt UM and the second one will require swapping 0:09:18.400 --> 0:09:22.000 some of the debt into its shares as well as 0:09:22.120 --> 0:09:26.560 shares of the Hong Kong listed units UM. And now 0:09:26.800 --> 0:09:31.080 they have some disagreements over you know, the equity valuation 0:09:31.880 --> 0:09:35.679 of those shares UM, which you know, if the company 0:09:35.800 --> 0:09:39.600 is more bullish on its own share valuation whereas if 0:09:39.640 --> 0:09:43.920 creditors think it's less, it would imply a deeper haircut 0:09:44.120 --> 0:09:48.840 for the bondholders UM. So valuation is one thing. We 0:09:48.960 --> 0:09:53.280 also learned that the company is only willing to offer 0:09:53.320 --> 0:09:59.160 a small percentage of its stakes in those teamiths, whereas 0:09:59.640 --> 0:10:04.760 the editors are demanding almost entire Evergrand's entire stakes in 0:10:04.800 --> 0:10:08.680 those units. So that's another sticking point. There are other 0:10:08.760 --> 0:10:12.440 things like the the group is actually demanding the company 0:10:12.520 --> 0:10:16.760 to address is corporate governance issue that we have seen 0:10:16.840 --> 0:10:19.960 this happening, How do we prevent this from happening again? 0:10:20.040 --> 0:10:24.040 So that's among their demands. Those are a few things 0:10:24.120 --> 0:10:27.120 that they just cannot get on the same page at 0:10:27.120 --> 0:10:30.480 the moment. And as you mentioned, it's not just local investor, 0:10:30.520 --> 0:10:32.560 its foreign bond holders as well. Who are we talking about? 0:10:32.559 --> 0:10:36.160 Are there any big names in there? Yeah, Unfortunately, I'm 0:10:36.200 --> 0:10:40.400 not sure I can disclose that at the moment, but yeah, 0:10:40.400 --> 0:10:44.559 you're absolutely right. Um. Evergrand debt is not just held 0:10:44.600 --> 0:10:49.199 by local creditors. It really has deep implication for China's 0:10:49.200 --> 0:10:53.080 onshore financial system. But let's not forget it used to 0:10:53.120 --> 0:10:56.920 be the largest dollar debt borrower. Like I said, in China, 0:10:57.400 --> 0:11:01.240 China's a real estate sector. So dollar bonds are held 0:11:01.280 --> 0:11:04.680 by a lot of global investors, big and small. And 0:11:04.720 --> 0:11:07.760 the group that I'm talking about here is an ale 0:11:07.880 --> 0:11:12.040 group of dollar bond holders and they are just some 0:11:12.080 --> 0:11:14.440 of the big ones that are talking with the company. 0:11:15.320 --> 0:11:18.920 But that the company still need to after convincing them, 0:11:18.920 --> 0:11:21.959 still need to convince is Broader set all of his 0:11:22.080 --> 0:11:26.000 dollar bond holders at some point to agree on a 0:11:26.040 --> 0:11:30.360 restructuring plan to really move the progress forward. You mentioned 0:11:30.360 --> 0:11:32.160 it right down as well, and obviously the company needs 0:11:32.200 --> 0:11:34.840 to get rid of some of that. What are we 0:11:34.880 --> 0:11:36.560 talking about, do we have any sense at this point 0:11:36.600 --> 0:11:38.760 of how much of a haircut credits might be taking 0:11:38.840 --> 0:11:44.560 hire That unfortunately is not very clear at the moment yet. Okay, 0:11:44.600 --> 0:11:47.960 and so what will happen if Everground loses its lawsuit? Yeah, 0:11:48.000 --> 0:11:50.400 that's the scary thing. As I was saying, a lot 0:11:50.440 --> 0:11:54.600 of creditors have been threatening with such lawsuits to get 0:11:54.600 --> 0:11:57.679 the company to come to the negotiation table. And I 0:11:57.720 --> 0:12:00.800 would say in Everground's case, it has definitely worked because 0:12:00.840 --> 0:12:04.480 the company's restructuring did pick up pace after that winding 0:12:04.520 --> 0:12:08.480 up lawsuit was filed. But we have started to see 0:12:08.600 --> 0:12:12.960 some developers actually getting the winding up order from Hong 0:12:13.040 --> 0:12:16.559 Kong court and facing liquidation. So that's what's going to 0:12:16.640 --> 0:12:20.520 happen to Evergrants if they lose this lawsuit, the court 0:12:20.600 --> 0:12:23.920 can appoint a liquidator, comes these all of its off 0:12:23.960 --> 0:12:28.400 score assets and sell them and use them to repay 0:12:28.520 --> 0:12:32.360 its credit tres. Another thing here is you know if 0:12:32.360 --> 0:12:37.400 Evergrand doesn't want to lose this lawsuits. It's also important, 0:12:37.600 --> 0:12:40.920 also important because the company's shares and this unit shares 0:12:41.400 --> 0:12:45.160 have been on pause. They have been halted since March 0:12:45.240 --> 0:12:48.880 twenty twenty two because it could not deliver is earnings results, 0:12:49.679 --> 0:12:54.319 but it has seen them been on pause, and to 0:12:54.360 --> 0:12:59.040 get this lawsuit dismissed or result is among many conditions 0:12:59.120 --> 0:13:02.920 for it to resume his shares trading again. And if 0:13:02.920 --> 0:13:06.520 the shares do not trade for over eighteen months, it 0:13:06.600 --> 0:13:10.080 could be delisted from Hong Kong Stock Exchange. So that's 0:13:10.080 --> 0:13:13.400 another thing that you know, the company needs to watch 0:13:13.400 --> 0:13:16.240 out for. So it's obviously a huge story in China 0:13:16.320 --> 0:13:18.400 right now, and it also involves a man who was 0:13:18.440 --> 0:13:20.960 once the richest in the country and one of the 0:13:20.960 --> 0:13:25.679 most influential people. You know, he was across business, across politics, 0:13:25.880 --> 0:13:29.000 and worth about forty two billion dollars at one point. 0:13:29.480 --> 0:13:31.000 Can you give us a bit of a flavor of that, 0:13:31.040 --> 0:13:36.440 please sell us? Yeah? Sure, So Hui Kayan, like you 0:13:36.520 --> 0:13:40.840 were saying, was once China's one of China's richest and 0:13:41.160 --> 0:13:47.800 most influential business meant he used to be worth forty 0:13:47.800 --> 0:13:51.480 two US billion US dollars you were men mentioning, and 0:13:51.559 --> 0:13:57.720 now there's lost ninety three percent of that wealth he used. 0:13:57.960 --> 0:14:02.080 He also was very politically stabby. He has been part 0:14:02.120 --> 0:14:05.640 of the political advisory body since two thousand and eight, 0:14:06.559 --> 0:14:10.840 but now he's no longer part of China's People's Political 0:14:10.960 --> 0:14:14.600 Consultive Conference anymore. So he's lost as wealth and he's 0:14:14.600 --> 0:14:17.720 a political status. And in terms of the ripple effect 0:14:17.760 --> 0:14:22.400 from this whole Evergrand situation, what are the bigger implications 0:14:22.400 --> 0:14:25.520 for China's credit markets? I mean, has the default at 0:14:25.560 --> 0:14:29.560 this scale scared away foreign investors? Are they are the 0:14:29.640 --> 0:14:33.520 developers now shut out of capital markets? Yeah? Absolutely, both 0:14:33.520 --> 0:14:37.360 of those things. So for one, a lot of developers 0:14:37.440 --> 0:14:40.320 cannot come to the market now. It is, like I said, 0:14:40.360 --> 0:14:43.520 not Evergrand alone, because this is part of the making 0:14:43.640 --> 0:14:47.160 of China's crackdown on the whole sector. But Evergrand being 0:14:47.360 --> 0:14:53.320 the highest profile casualty is no doubt contributing to a 0:14:53.880 --> 0:14:56.840 large part of this. And as I was saying, the 0:14:56.840 --> 0:15:00.440 sectors no ball into require amount of default. What that 0:15:00.480 --> 0:15:03.840 has led to is the yields in the secondary market 0:15:04.280 --> 0:15:07.880 has become way too high. So they have not come 0:15:07.960 --> 0:15:12.240 down a bit to around sixteen percent that previously reached 0:15:12.360 --> 0:15:16.040 almost thirty percent. And that means if issuers want to 0:15:16.080 --> 0:15:18.640 come to the primary market to borrow new debt, they 0:15:18.680 --> 0:15:21.600 would need to pay that much or even more to 0:15:21.840 --> 0:15:24.760 have an edge over the secondary market. And that is 0:15:24.800 --> 0:15:27.920 just way too much, you know, way too expensive for 0:15:28.040 --> 0:15:31.760 borers to come to this market again. So this sector 0:15:32.000 --> 0:15:35.920 really used to be dominating, not just China, about Asia's 0:15:36.000 --> 0:15:41.520 whole dollar bond issuance, and has shrunk a lot in 0:15:41.680 --> 0:15:45.840 this past year. So that's part one that is issuers 0:15:45.880 --> 0:15:50.720 are shot out of the market, and another one is 0:15:50.760 --> 0:15:53.200 just yeah, like I said, there are a ton of 0:15:53.280 --> 0:15:57.920 defaults and unresolved debt issues, and people are watching out 0:15:57.960 --> 0:16:00.960 for these restructurings and watching to ever Grand because that 0:16:01.120 --> 0:16:05.080 is led by government's efforts right now and suport looking 0:16:05.080 --> 0:16:07.560 for a clue of how the government wants to resolve 0:16:07.600 --> 0:16:12.040 all of these issues. Okay, that's very interesting. Investors in 0:16:12.080 --> 0:16:14.560 these situations they often have quite a short memory. They 0:16:14.600 --> 0:16:16.320 you know, they take a hit, they move on, they 0:16:16.360 --> 0:16:18.880 come back because they want to invest in a huge 0:16:18.880 --> 0:16:24.080 economy like China. You do we really think that Evergrand 0:16:24.320 --> 0:16:26.440 is going to leave a lasting impression that there's going 0:16:26.440 --> 0:16:28.680 to be something that China is not going to bounce 0:16:28.720 --> 0:16:32.120 back from. That's hard to say. Today. Actually we're seeing 0:16:32.280 --> 0:16:36.440 China's property market, um, I mean in terms of sales 0:16:36.920 --> 0:16:40.400 are finally bounding back a little bit. Um. So that 0:16:40.520 --> 0:16:46.360 is the latest data from February. However, for dollar bond investors, 0:16:46.600 --> 0:16:50.480 I believe they will they will carry to his memory 0:16:50.480 --> 0:16:53.520 with that's for how long, I'm not sure, but you know, 0:16:53.640 --> 0:16:58.240 for one, if the companies really also depends on the 0:16:58.240 --> 0:17:02.760 company's restructing plan. Right, is just going to extend its 0:17:02.760 --> 0:17:07.440 debt for twelve years as we had reported previously, than 0:17:07.720 --> 0:17:10.600 keep pointing to wait out those twelve years until they 0:17:10.600 --> 0:17:13.200 can finally get their money back, And I bet they're 0:17:13.200 --> 0:17:15.879 going to seem a matter of memory. Alice One of 0:17:15.920 --> 0:17:18.000 Bloomberg News, thank you so much for joining us. This 0:17:18.080 --> 0:17:21.120 is a fascinating story with broad implications, and we look 0:17:21.160 --> 0:17:23.280 forward to reading all of your scoops on the Bloomberg 0:17:23.440 --> 0:17:26.880 terminal and of course at Bloomberg dot com. Thank you 0:17:27.560 --> 0:17:30.080 Switching gears here a bit. As I mentioned earlier, we 0:17:30.160 --> 0:17:33.840 are very fortunate to have Mary Ellen Olsen from Bloomberg Intelligence, 0:17:33.880 --> 0:17:37.040 also based in Hong Kong. Now, when we met a 0:17:37.040 --> 0:17:40.680 few weeks ago, Mary Ellen, we talked a bit about India, 0:17:41.119 --> 0:17:43.040 which has been in the news quite a bit because 0:17:43.040 --> 0:17:45.440 of a Danny. Just to catch everyone up a bit. 0:17:45.680 --> 0:17:49.600 Danny is an Indian ports to renewable energy conglomerate that 0:17:49.680 --> 0:17:52.920 was accused of accounting fraud and stock manipulation and experienced 0:17:52.920 --> 0:17:57.040 a big route in its stock hand bond prices. There's 0:17:57.040 --> 0:17:59.200 a lot of concern now over whether it can repay 0:17:59.240 --> 0:18:02.000 the debt. The news has really shone a light on 0:18:02.040 --> 0:18:04.880 all Indian companies, the way they're structured and how they run. 0:18:05.600 --> 0:18:07.840 But we're not here to talk about Donnie. Instead, we're 0:18:07.880 --> 0:18:11.600 going to dig into another big Indian firm, Vedanta Resources, 0:18:11.920 --> 0:18:14.480 which is a getting a lot of attention and involves 0:18:14.480 --> 0:18:18.879 a highly also involves a highly leveled tycoon. So to 0:18:18.920 --> 0:18:21.359 start with, I've got to ask Mary Ellen, is this 0:18:21.440 --> 0:18:24.760 the next to Danny we're looking at here? Well, I 0:18:24.800 --> 0:18:29.000 think there's some similarities between the two companies, but I 0:18:29.040 --> 0:18:32.320 think Vedanta is starting from a much different point than 0:18:32.520 --> 0:18:37.280 where we saw a Donnie's start. A Donnie's Sports company 0:18:37.359 --> 0:18:40.680 is rated in the investment grade category in the low 0:18:40.800 --> 0:18:44.040 triple B space, and of course Vedanta is rated in 0:18:44.080 --> 0:18:47.240 the low single B space. So I think we can 0:18:47.320 --> 0:18:52.560 expect that it has more governance issues, more liquidity and 0:18:52.680 --> 0:18:57.400 financial risk than a Donnie to start with. So, just 0:18:57.440 --> 0:19:00.919 to kind of set the state, I think it's starting 0:19:00.920 --> 0:19:05.240 off from a weaker position I think the similarity similarities 0:19:05.280 --> 0:19:10.040 between the two companies, however, do raise some some flags. 0:19:10.040 --> 0:19:13.200 And I think the key similarities would be that they're 0:19:13.200 --> 0:19:17.560 both you know, run by the promoter, which directs the 0:19:17.920 --> 0:19:22.240 you know, the direction that the company goes in. They 0:19:22.240 --> 0:19:26.760 both have very complex corporate structures and that can limit 0:19:27.000 --> 0:19:31.520 transparency and also to some extent give rise to information risk. 0:19:32.359 --> 0:19:37.280 And finally, the companies both have a lot of debt 0:19:37.440 --> 0:19:41.600 and have used debt to grow their businesses. So I 0:19:41.640 --> 0:19:45.360 think that in general there is some flags that can 0:19:45.359 --> 0:19:49.159 be seen across both of the names. So we just 0:19:49.200 --> 0:19:52.360 to back up. Let's let's talk about the company itself. 0:19:52.400 --> 0:19:55.679 For those not familiar, what is Vadanta Resources? What do 0:19:55.720 --> 0:19:59.119 they do? And you know why why why do we 0:19:59.160 --> 0:20:01.479 care about them in terms of like the you know, 0:20:01.680 --> 0:20:07.840 the Indian and the Asian commodity market. So the Danta 0:20:08.080 --> 0:20:13.640 is a mining company. Its key industries are oil, aluminum, 0:20:13.800 --> 0:20:16.960 and zinc. Those are what comprise the bulk of its 0:20:17.040 --> 0:20:20.880 EBIATA generation. And I think that we care about them 0:20:20.880 --> 0:20:23.760 in the US dollar bond space is because they've been 0:20:23.800 --> 0:20:27.959 a heavy dollar bond issuer. At the moment, the holding 0:20:28.000 --> 0:20:33.080 company has about five billion in dollar bonds outstanding, and 0:20:33.200 --> 0:20:37.360 it does have liquidity risks, and people are worried about 0:20:37.440 --> 0:20:40.880 whether or not they have the resources to pay the debt, 0:20:41.200 --> 0:20:44.960 especially given the fact that their their debt maturity profile 0:20:45.560 --> 0:20:49.840 is relatively short term. But the metals that you mentioned 0:20:49.840 --> 0:20:51.560 and the set that they're in generally, I mean, that's 0:20:51.560 --> 0:20:53.639 been a good, good one over the last few years, right, 0:20:53.680 --> 0:20:56.760 the commodities have rallied, the metals have been in demand, 0:20:56.760 --> 0:20:59.439 there's been a big boom. Why why would this company 0:20:59.440 --> 0:21:05.920 not do well well? I think there's a story. Obviously, 0:21:05.920 --> 0:21:08.160 with all high yield companies, I think there's a story. 0:21:08.840 --> 0:21:12.160 And the story with this company really goes back to 0:21:12.359 --> 0:21:20.280 its corporate structure. The US dollar bond bower and obligore 0:21:20.600 --> 0:21:24.160 is Vedanta Resources, so that sits at the top of 0:21:24.200 --> 0:21:28.800 the corporate structure. But it's not an operating company. So 0:21:28.840 --> 0:21:31.960 even though it has all that, it doesn't have any 0:21:32.240 --> 0:21:37.640 operations itself. So it relies on the upstream of dividends 0:21:37.680 --> 0:21:42.560 from its subsidiaries. So its core subsidiary is Vedanta Limited 0:21:42.640 --> 0:21:46.840 and it owns about seventy percent of that and Vedanta 0:21:46.920 --> 0:21:50.359 Limited owns one hundred percent of the oil and gas 0:21:50.359 --> 0:21:54.160 assets and they account for about twenty five percent of EBIDA, 0:21:55.480 --> 0:22:00.120 and Vedanta Limited owns sixty five percent of the zinc assets, 0:22:00.119 --> 0:22:04.080 which account for about fifty percent of EBIDA, and then 0:22:04.320 --> 0:22:08.159 it owns about fifty one percent of the aluminum company, 0:22:08.280 --> 0:22:12.000 which is about fifteen percent of EBIDA. So you've got 0:22:12.000 --> 0:22:14.680 to keep in mind that all these subsidiary companies they 0:22:14.720 --> 0:22:18.119 also have debt and they also have you know, capex 0:22:18.160 --> 0:22:21.000 needs that they need to fund. So what's left over 0:22:21.160 --> 0:22:25.159 is then you know, what can be upstreamed to eventually 0:22:25.200 --> 0:22:28.960 to the Danta resources to cover the obligations there. So 0:22:29.200 --> 0:22:33.960 that complexity creates a problem in terms of the efficiency 0:22:34.240 --> 0:22:38.119 of you know, cash flows throughout the corporate structure to 0:22:38.119 --> 0:22:42.640 to repay all of the obligations. So can it means 0:22:43.840 --> 0:22:47.479 repents and how does it do that? Well, Um, you know, 0:22:47.600 --> 0:22:50.960 it has some levers that it can pull. It's it's 0:22:51.000 --> 0:22:54.439 primary level lever has been over the past several months, 0:22:54.480 --> 0:22:59.679 the dividend upstreams, particularly from the zinc subsidiary, which is 0:23:00.160 --> 0:23:04.040 cash risk rich. Um. In addition to that, it has 0:23:04.080 --> 0:23:07.920 some nominal fees that it can assess on its subsidiaries 0:23:07.960 --> 0:23:10.560 and it can bring those moneys up to the holding company, 0:23:11.400 --> 0:23:14.840 and of course it can also rely on new funding 0:23:16.720 --> 0:23:20.680 from from banks, either domestic banks or international banks. So 0:23:20.720 --> 0:23:24.320 those are the key levers that they're looking at at 0:23:24.359 --> 0:23:27.520 the moment. They actually came out today saying that they 0:23:27.520 --> 0:23:33.120 were looking at raising about one point eight billion from 0:23:33.200 --> 0:23:38.160 banks and were in advanced negotiations in that regard at 0:23:38.160 --> 0:23:42.280 the moment, although they did not really name any counterparties 0:23:42.400 --> 0:23:45.680 or disclose any time frames that they're looking for foreign 0:23:45.720 --> 0:23:49.480 investors in that they didn't really specify the banks, but 0:23:49.600 --> 0:23:51.680 the sense is that some of that would come from 0:23:51.720 --> 0:23:55.119 domestic and they're also looking at some international banks. Okay, 0:23:55.320 --> 0:23:58.040 but based on the yields right now in the dollar market, 0:23:58.040 --> 0:24:00.520 would they have too they be able to get an 0:24:00.520 --> 0:24:03.560 affordable rates on that that remains to be seen. Um. 0:24:03.680 --> 0:24:07.080 Certainly their you know, their bonds themselves are yielding in 0:24:07.119 --> 0:24:11.000 the double digit territory, and press reports a couple of 0:24:11.000 --> 0:24:14.639 weeks ago did indicate that the potential funding for the 0:24:14.760 --> 0:24:19.120 company was was quite high. But previously the company has 0:24:19.240 --> 0:24:24.680 shown a willingness to finance at pretty high rates. Back 0:24:24.720 --> 0:24:28.520 in twenty twenty one, they issued US dollar debt at 0:24:28.600 --> 0:24:33.680 at about thirteen percent or over so they do show 0:24:33.760 --> 0:24:37.760 an ability to to bring in funds even if they 0:24:37.760 --> 0:24:40.560 have to pay high rates. And that yield you mentioned, 0:24:40.560 --> 0:24:42.400 I mean, to what extent do you think that's influenced 0:24:42.400 --> 0:24:45.679 by the situation at A Donnie at the moment, you know, 0:24:45.720 --> 0:24:49.280 I don't. I don't think that there has been a 0:24:49.400 --> 0:24:53.679 huge impact just because the starting rates, um, you know, 0:24:53.800 --> 0:24:58.119 pre the Hindenburg report on a Donnie, we're pretty high. 0:24:58.160 --> 0:25:00.560 You know, right now they're in the double digits. They 0:25:00.560 --> 0:25:04.080 were there then as well. Where I've seen more of 0:25:04.080 --> 0:25:07.720 a crossover impact probably would be on the stock prices, 0:25:07.800 --> 0:25:11.240 which took a dive just this week. They were down 0:25:11.280 --> 0:25:15.440 I think up to twenty no, about ten percent this week, 0:25:17.680 --> 0:25:20.920 and that kind of coincided with all this rhetoric coming 0:25:20.960 --> 0:25:25.280 out comparing Vedanta and Donnie. And of course here before 0:25:25.480 --> 0:25:29.800 the stockholders had been receiving good dividends because of all 0:25:29.840 --> 0:25:32.920 these upstreams. But I think this idea that there's a 0:25:33.760 --> 0:25:38.600 contagent risk feeding into Vedanti helped push the stock prices. 0:25:38.680 --> 0:25:41.600 So I've seen more of an impact probably in the 0:25:41.680 --> 0:25:45.680 stock than in the bonds. That at least I can discern. Okay, 0:25:45.720 --> 0:25:47.800