1
00:00:02,560 --> 00:00:05,280
Speaker 1: Good morning. It's Tuesday, the twenty sixth of September here

2
00:00:05,320 --> 00:00:07,680
Speaker 1: in London. This is the BlueBag Day ba Qut podcast.

3
00:00:07,760 --> 00:00:09,120
Speaker 1: I'm Caroline Hepkitt.

4
00:00:08,920 --> 00:00:12,280
Speaker 2: And I'm Stephen Carroll. Coming up today, China's property crisis

5
00:00:12,320 --> 00:00:16,799
Speaker 2: deepens as defaults pile up and Evergrand's former CEO is detained.

6
00:00:17,200 --> 00:00:20,840
Speaker 1: The CEOs of Goldman Sachs and JP Morgan both warn

7
00:00:20,920 --> 00:00:22,919
Speaker 1: of the impact of high interest rates.

8
00:00:23,120 --> 00:00:25,959
Speaker 2: And we take a closer look at private equities warning

9
00:00:26,040 --> 00:00:29,160
Speaker 2: signs where some buyout firms are borrowing at rates as

10
00:00:29,240 --> 00:00:31,000
Speaker 2: high as nineteen percent.

11
00:00:31,360 --> 00:00:33,639
Speaker 1: Let's start with a roundup of our chop stories.

12
00:00:33,800 --> 00:00:37,200
Speaker 2: The trouble. Chinese property developer Evergrand says its mainland unit

13
00:00:37,240 --> 00:00:39,800
Speaker 2: has defaulted on a four billion Yu one or five

14
00:00:39,880 --> 00:00:43,120
Speaker 2: hundred and forty seven million dollars on shore bond. The

15
00:00:43,200 --> 00:00:46,239
Speaker 2: default comes as reports emerged that a former CEO and

16
00:00:46,400 --> 00:00:49,920
Speaker 2: CFO at the company have been detained by Chinese authorities.

17
00:00:50,159 --> 00:00:53,800
Speaker 2: Bloomberg's Loans and Bonds reporter Loretta Chen has the details.

18
00:00:54,480 --> 00:00:57,080
Speaker 3: The local media ties See, which is a reputable media

19
00:00:57,120 --> 00:01:00,200
Speaker 3: and mail in China reporter, last night that the XCO

20
00:01:00,280 --> 00:01:04,480
Speaker 3: and CEO of Evergrand Group were detained by police. And

21
00:01:04,520 --> 00:01:06,640
Speaker 3: these are the people who used to be right hand

22
00:01:06,720 --> 00:01:09,560
Speaker 3: men of Qui Kao Yen, the founder of Evergrand. So

23
00:01:09,680 --> 00:01:12,760
Speaker 3: this is quite significant in terms of the destiny of

24
00:01:12,800 --> 00:01:15,840
Speaker 3: this company. You know whether it's going to finish all

25
00:01:15,880 --> 00:01:20,520
Speaker 3: these unfinished projects while its chief executives are detained.

26
00:01:21,920 --> 00:01:24,480
Speaker 2: The right often says the detentions you add yet another

27
00:01:24,560 --> 00:01:29,160
Speaker 2: layer of uncertainty to Evergrand's restructuring plan with creditors. The

28
00:01:29,200 --> 00:01:32,760
Speaker 2: news comes after a Bloomberg Intelligence gauge of Chinese developers

29
00:01:32,920 --> 00:01:36,399
Speaker 2: dropped by the most since twenty twenty two, as concerns

30
00:01:36,480 --> 00:01:37,600
Speaker 2: over the sector grow.

31
00:01:38,560 --> 00:01:42,600
Speaker 1: Now that you used, chief trade negotiator says that Beijing's

32
00:01:42,640 --> 00:01:46,800
Speaker 1: failure to condemn Russia's war in Ukraine was damaging China's

33
00:01:46,800 --> 00:01:50,320
Speaker 1: investment opportunities. Wrapping up a high stakes trip to the

34
00:01:50,320 --> 00:01:55,240
Speaker 1: world's second largest economy, Valdis Dombrovskis issued this clear attack

35
00:01:55,320 --> 00:01:57,920
Speaker 1: on President Shijingping's foreign policy.

36
00:01:58,760 --> 00:02:02,520
Speaker 4: China's position is affecting the country's image not only with

37
00:02:02,640 --> 00:02:07,760
Speaker 4: European consumers, but also with businesses. Over a third of

38
00:02:07,880 --> 00:02:11,400
Speaker 4: EO companies in this country. Help indicated that China's position

39
00:02:11,520 --> 00:02:15,000
Speaker 4: on the war is making it a less attractive investment destination.

40
00:02:16,360 --> 00:02:20,720
Speaker 4: China's response and its contribution to resolving the war is

41
00:02:20,760 --> 00:02:27,079
Speaker 4: a way that is important for US to engagement well.

42
00:02:27,160 --> 00:02:30,680
Speaker 1: This don Blovski's trip to China comes as the EU

43
00:02:30,720 --> 00:02:34,520
Speaker 1: announced a probe into Chinese electric car subsidies. The move

44
00:02:34,560 --> 00:02:37,919
Speaker 1: has increased tensions between Bustles and Beijing, with the most

45
00:02:37,960 --> 00:02:40,440
Speaker 1: significant risk being a damaging trade war.

46
00:02:40,960 --> 00:02:43,040
Speaker 2: This years of two of All Street's biggest banks have

47
00:02:43,120 --> 00:02:46,640
Speaker 2: been weighing in on growth and rates. Goldman Sachs Post

48
00:02:46,680 --> 00:02:49,519
Speaker 2: David Solomon says he expects the FED to hike further

49
00:02:49,600 --> 00:02:52,359
Speaker 2: and the US economy it's a cool Here's what he

50
00:02:52,440 --> 00:02:54,919
Speaker 2: tells the American Energy Security Summers.

51
00:02:55,240 --> 00:02:57,200
Speaker 5: I think it's going to be hard to get inflation

52
00:02:57,320 --> 00:03:00,000
Speaker 5: back to the target, and that probably means of inflation

53
00:03:00,080 --> 00:03:03,440
Speaker 5: and the sticky We will see additional interest rate increases,

54
00:03:03,440 --> 00:03:06,440
Speaker 5: and ultimately that probably does lead to a little bit

55
00:03:06,440 --> 00:03:09,080
Speaker 5: more of a slowdown in the economy. Whether that's a

56
00:03:09,080 --> 00:03:11,639
Speaker 5: recession or it's just a slow down, you know, it's

57
00:03:11,680 --> 00:03:14,280
Speaker 5: hard to say, but it would be unprecedented to go

58
00:03:14,360 --> 00:03:17,239
Speaker 5: through this type of a tightening cycle and not see

59
00:03:17,320 --> 00:03:19,600
Speaker 5: us get to a little bit of slower economic growth

60
00:03:19,639 --> 00:03:20,680
Speaker 5: and what we're seeing right now.

61
00:03:21,360 --> 00:03:25,040
Speaker 2: The comments from Solomon Commas JP Morgan CEO Jamie diamond

62
00:03:25,040 --> 00:03:28,040
Speaker 2: also sounded a warning on higher rates, saying quote, I'm

63
00:03:28,080 --> 00:03:31,880
Speaker 2: not sure the world is prepared for seven percent. Speaking

64
00:03:31,919 --> 00:03:34,040
Speaker 2: to the Times of India, Diamonds said that going to

65
00:03:34,080 --> 00:03:37,120
Speaker 2: that level would be much more painful than getting to

66
00:03:37,320 --> 00:03:38,120
Speaker 2: five percent.

67
00:03:39,280 --> 00:03:43,000
Speaker 1: The London Stock Exchange CEO Julia Hoggart says that UK

68
00:03:43,160 --> 00:03:47,160
Speaker 1: firms risk their market value by listing in America. The

69
00:03:47,360 --> 00:03:52,520
Speaker 1: LSE boss told a conference that international companies underperform US

70
00:03:52,520 --> 00:03:56,400
Speaker 1: domestic companies in their stock market. She noted that out

71
00:03:56,440 --> 00:03:59,400
Speaker 1: of twenty three British firms that have raised over one

72
00:03:59,480 --> 00:04:02,320
Speaker 1: hundred million dollars in the US over the past decade,

73
00:04:02,560 --> 00:04:06,560
Speaker 1: six have delisted, thirteen are trading down and only four

74
00:04:06,640 --> 00:04:09,400
Speaker 1: are trading above their initial value.

75
00:04:09,720 --> 00:04:13,280
Speaker 2: Nisan says it's still committed to making only electric electric

76
00:04:13,360 --> 00:04:17,799
Speaker 2: vehicles by twenty thirty, despite Rishi Sinac's green rollback. Bloombergs

77
00:04:17,839 --> 00:04:19,440
Speaker 2: Ewan Paths reports.

78
00:04:19,000 --> 00:04:21,600
Speaker 6: The boss of the UK's biggest car factory says there's

79
00:04:21,680 --> 00:04:24,640
Speaker 6: no turning back now. The words of NIS and CEO,

80
00:04:24,720 --> 00:04:27,200
Speaker 6: who says he's sticking with the company's plan to produce

81
00:04:27,320 --> 00:04:31,120
Speaker 6: only electric vehicles in Europe by twenty thirty Last week,

82
00:04:31,160 --> 00:04:33,359
Speaker 6: Prime Minister is she Soon pushed back plans for a

83
00:04:33,520 --> 00:04:35,800
Speaker 6: UK ban on the sale of new petrol and diesel

84
00:04:35,839 --> 00:04:39,159
Speaker 6: cars by five years to twenty thirty five. Nis Ads

85
00:04:39,160 --> 00:04:41,680
Speaker 6: also said it could make more vehicles at its massive

86
00:04:41,800 --> 00:04:44,800
Speaker 6: Sunderland plants if the UK signs better trade deals to

87
00:04:44,880 --> 00:04:48,040
Speaker 6: export them. Officials from the EU and UK, meanwhile, are

88
00:04:48,040 --> 00:04:50,920
Speaker 6: expected to meet today to discuss their EU tariff regime

89
00:04:51,320 --> 00:04:53,440
Speaker 6: in London. I'm you in parts of Bloomberg Radio.

90
00:04:54,839 --> 00:04:59,160
Speaker 1: Now when it comes to Rishisunac. He is also under

91
00:04:59,200 --> 00:05:02,560
Speaker 1: pressure to say whether HS two will go ahead in full.

92
00:05:02,640 --> 00:05:04,960
Speaker 1: It's understood that the Prime Minister is concerned by the

93
00:05:05,000 --> 00:05:08,200
Speaker 1: cost of the rail project, but he has not confirmed

94
00:05:08,240 --> 00:05:11,760
Speaker 1: reports that the Birmingham to Manchester section will be scrapped.

95
00:05:12,160 --> 00:05:15,320
Speaker 1: The former chairman of HS two until twenty twenty one,

96
00:05:15,400 --> 00:05:19,200
Speaker 1: Alan Cook, has told Bloomberg's UK Politics podcast the government

97
00:05:19,320 --> 00:05:21,960
Speaker 1: is ignoring the long term benefits of the plan.

98
00:05:22,480 --> 00:05:26,400
Speaker 7: There has to be a much more consistent and concerted

99
00:05:27,080 --> 00:05:33,040
Speaker 7: view from government about the long term programs. If we

100
00:05:33,160 --> 00:05:37,760
Speaker 7: constantly move away from one position too, to another position,

101
00:05:38,560 --> 00:05:43,120
Speaker 7: it damages our reputation, It damages the way that we

102
00:05:43,160 --> 00:05:46,320
Speaker 7: actually look at things, and actually when we're trying to

103
00:05:46,440 --> 00:05:49,640
Speaker 7: recruit the very very best people that we need in

104
00:05:49,680 --> 00:05:52,000
Speaker 7: the program, it makes them very concerned.

105
00:05:53,560 --> 00:05:57,360
Speaker 1: Alan Cook is currently chairman of the High Value Manufacturing Catapult.

106
00:05:57,400 --> 00:06:01,279
Speaker 1: The Ft reports that the US owners of Birmingham City

107
00:06:01,320 --> 00:06:03,600
Speaker 1: Football Club have written to the Prime Minister with a

108
00:06:03,640 --> 00:06:06,920
Speaker 1: similar warning that he will damage trust in the UK

109
00:06:07,080 --> 00:06:09,719
Speaker 1: if he scraps the HS two rail project.

110
00:06:10,640 --> 00:06:12,880
Speaker 2: Citadel founder Ken Griffin is said to have joined a

111
00:06:12,880 --> 00:06:15,760
Speaker 2: group of investors led by fellow hedge fund manager Paul

112
00:06:15,839 --> 00:06:19,960
Speaker 2: Marshall in a bid to take over the UK's Telegraph Group. Marshall,

113
00:06:20,000 --> 00:06:22,599
Speaker 2: co founder of the London based hedge fund Marshall Wasce,

114
00:06:22,960 --> 00:06:26,120
Speaker 2: is lining up backers as he prepares for the auction

115
00:06:26,520 --> 00:06:29,560
Speaker 2: expected in the coming weeks. Bloomberg understands that Griffin would

116
00:06:29,560 --> 00:06:32,760
Speaker 2: only invest in such an effort personally and not through

117
00:06:32,960 --> 00:06:36,880
Speaker 2: his company. Now, our food editor Kate Crater has the

118
00:06:37,279 --> 00:06:39,120
Speaker 2: list that you need to read if you're planning to

119
00:06:39,160 --> 00:06:41,800
Speaker 2: eat out in London this autumn. She's got her top

120
00:06:41,920 --> 00:06:45,560
Speaker 2: thirteen new London restaurants. So the openings that you have

121
00:06:45,640 --> 00:06:48,920
Speaker 2: to get to. Interestingly, I suppose when when Kate lays

122
00:06:48,960 --> 00:06:50,640
Speaker 2: it out in the piece, but I kind of hadn't

123
00:06:50,640 --> 00:06:52,400
Speaker 2: realized that this is the time of the year, which

124
00:06:52,440 --> 00:06:54,919
Speaker 2: is the you know where everything ramps up a center

125
00:06:54,920 --> 00:06:57,839
Speaker 2: of the food industry, because everyone's come back to I suppose,

126
00:06:57,880 --> 00:07:00,280
Speaker 2: back from their summer holidays essentially. Among those I was

127
00:07:00,360 --> 00:07:02,600
Speaker 2: very interested in was the Wolseley's opening up a new

128
00:07:02,600 --> 00:07:06,000
Speaker 2: dining room in the City William Street only around the corner. Yeah, okay,

129
00:07:06,480 --> 00:07:09,320
Speaker 2: we'll book in there that opens up. But interestingly, there's

130
00:07:09,320 --> 00:07:11,240
Speaker 2: a Japanese team running through some of the really hot

131
00:07:11,280 --> 00:07:14,600
Speaker 2: openings as well, and Kate talks about there's the sushi

132
00:07:14,640 --> 00:07:17,920
Speaker 2: master Massa Yoshi taki Yama, who's opening his first UK

133
00:07:18,040 --> 00:07:20,600
Speaker 2: restaurant in Harold's. They've renovated the Foodthold on Harold's.

134
00:07:20,640 --> 00:07:23,680
Speaker 1: Oh my goodness, who doesn't love eating in Harold's. Yeah,

135
00:07:24,160 --> 00:07:29,480
Speaker 1: Paper Moon, London and Westminster. That's another one that it

136
00:07:29,560 --> 00:07:31,160
Speaker 1: might be worth a visiting. I mean, Kate Crede, who

137
00:07:31,160 --> 00:07:35,520
Speaker 1: has literally the best building. I bump into her sometimes

138
00:07:35,520 --> 00:07:38,760
Speaker 1: in the Bloomberg Coffee area and she always has a

139
00:07:38,960 --> 00:07:42,640
Speaker 1: marvelous tale. I feel like he's trained as a chef,

140
00:07:42,680 --> 00:07:44,120
Speaker 1: actually has lfh Okay, I.

141
00:07:44,040 --> 00:07:46,040
Speaker 2: Mean I always feel that everyone stops her to ask

142
00:07:46,040 --> 00:07:48,559
Speaker 2: her advice for where they should eat this week. Of course,

143
00:07:48,800 --> 00:07:51,720
Speaker 2: slightly tortured by her colleagues. Anyway, that's a great piece

144
00:07:51,720 --> 00:07:53,240
Speaker 2: tree if you get a chance on Kate Crader about

145
00:07:53,280 --> 00:07:56,880
Speaker 2: the thirteen new restaurants in London to eat in this autumn.

146
00:07:57,160 --> 00:07:59,720
Speaker 1: Okay, Now, let's send our attention then to the crisis

147
00:08:00,320 --> 00:08:03,920
Speaker 1: Evergrand Group. It deepened on Monday after the company's mainland

148
00:08:04,000 --> 00:08:06,680
Speaker 1: unit said that it failed to repay an onshore bond.

149
00:08:07,120 --> 00:08:10,280
Speaker 1: The post to Charle for China's property woes scrapped key

150
00:08:10,320 --> 00:08:13,200
Speaker 1: creditor meetings at the last minute too. Let's discuss now

151
00:08:13,240 --> 00:08:16,560
Speaker 1: with China Credit editor Kevin Kingsbury. Kevin, thank you for

152
00:08:16,640 --> 00:08:21,440
Speaker 1: joining us. How did the defaults come about? Firstly, well, this.

153
00:08:21,480 --> 00:08:24,880
Speaker 8: Is the second time actually that Evergrand its Hengda unit

154
00:08:24,920 --> 00:08:27,520
Speaker 8: has defaulted on this particular bond. Six months ago it

155
00:08:27,560 --> 00:08:29,720
Speaker 8: had an interest payment and it didn't pay it. Then

156
00:08:29,800 --> 00:08:33,280
Speaker 8: said it was working with bond holders and the bond

157
00:08:33,679 --> 00:08:37,040
Speaker 8: four billion you won, it was put able on Monday.

158
00:08:37,559 --> 00:08:41,160
Speaker 8: That means it was the creditors had the ability to

159
00:08:41,200 --> 00:08:44,040
Speaker 8: demand early repayment. The bond wasn't actually due until twenty

160
00:08:44,080 --> 00:08:47,079
Speaker 8: twenty five, but they put it the bond in. Evergrand

161
00:08:47,160 --> 00:08:49,680
Speaker 8: said that it couldn't pay both the principle and the

162
00:08:49,720 --> 00:08:52,840
Speaker 8: interest on this bond. So it's the second time, but

163
00:08:52,880 --> 00:08:56,400
Speaker 8: it's also only the second entra bond that Evergrand has

164
00:08:56,520 --> 00:08:58,640
Speaker 8: defaulted on. We've talked so much in the past two

165
00:08:58,679 --> 00:09:01,680
Speaker 8: years about the offshore debt, but it has been keeping

166
00:09:01,760 --> 00:09:04,880
Speaker 8: kind of current with its onshore debts. It's also been

167
00:09:04,920 --> 00:09:07,559
Speaker 8: able to extend a number of different bonds there. So

168
00:09:07,800 --> 00:09:10,160
Speaker 8: this is kind of another signs just how bad things

169
00:09:10,200 --> 00:09:12,920
Speaker 8: are getting with Evergrand. They talked about obviously these falling

170
00:09:12,960 --> 00:09:16,600
Speaker 8: sales in Friday nights filing that in which they said

171
00:09:16,600 --> 00:09:19,480
Speaker 8: that the creditor votes for the offshore debt restruction was

172
00:09:19,480 --> 00:09:22,120
Speaker 8: going to be scrapped. So it's just one more thing

173
00:09:22,160 --> 00:09:23,640
Speaker 8: after another as far as evergrant, and.

174
00:09:23,600 --> 00:09:26,720
Speaker 2: Recently this of course as the company is trying to

175
00:09:26,720 --> 00:09:29,600
Speaker 2: work out its massive restructuring plan as well. What are

176
00:09:29,640 --> 00:09:31,400
Speaker 2: the next deadlines the company's facing.

177
00:09:32,120 --> 00:09:35,000
Speaker 8: Well, we're looking right now at October thirty, that's the

178
00:09:35,000 --> 00:09:37,480
Speaker 8: next hearing for what is called a winding up petition.

179
00:09:37,800 --> 00:09:40,760
Speaker 8: It's where creditors here in Hong Kong they can seek

180
00:09:41,080 --> 00:09:46,600
Speaker 8: court liquidation of assets from the creditor if there's any

181
00:09:46,640 --> 00:09:49,520
Speaker 8: concern that they're not able to get repayment or that

182
00:09:49,559 --> 00:09:53,240
Speaker 8: there's some sort of repayment controversy about the bond. So

183
00:09:53,320 --> 00:09:56,520
Speaker 8: in this case, it's an investor who bought into a

184
00:09:56,679 --> 00:10:00,319
Speaker 8: onshore car platform of Evergrand several years ago. Because it

185
00:10:00,360 --> 00:10:03,160
Speaker 8: didn't go public, there's been some back and forth as

186
00:10:03,160 --> 00:10:05,160
Speaker 8: to whether or not the investor is able to get

187
00:10:05,200 --> 00:10:07,720
Speaker 8: its investment back, and so that's why it filed this

188
00:10:07,880 --> 00:10:10,680
Speaker 8: court hearing back in over the middle of twenty twenty two.

189
00:10:11,000 --> 00:10:12,480
Speaker 8: So this has been going on for more than a

190
00:10:12,559 --> 00:10:15,440
Speaker 8: year now, and the judge in the case, who has

191
00:10:15,559 --> 00:10:19,880
Speaker 8: issued winding up orders against three other builders here in

192
00:10:19,880 --> 00:10:23,839
Speaker 8: Hong Kong, it hasn't been very good as far as

193
00:10:23,880 --> 00:10:27,199
Speaker 8: being able to let creditors continue to let things go.

194
00:10:27,360 --> 00:10:31,000
Speaker 8: So she may be pretty apt at this point to say,

195
00:10:31,040 --> 00:10:34,040
Speaker 8: you know what, I might be inclined to issue order

196
00:10:34,040 --> 00:10:36,160
Speaker 8: in favor of the plaintiff in this case come October thirty.

197
00:10:36,200 --> 00:10:37,079
Speaker 8: So we'll just have to wait and.

198
00:10:37,040 --> 00:10:42,000
Speaker 1: See, Okay, contagion risk. That is also clearly what has

199
00:10:42,600 --> 00:10:45,560
Speaker 1: worried many over the last couple of years. Could China's

200
00:10:45,600 --> 00:10:49,960
Speaker 1: deepening properly crisis flare up sort of more significantly.

201
00:10:49,240 --> 00:10:52,719
Speaker 8: Now, I think so. I mean, we'll I think get

202
00:10:52,720 --> 00:10:56,600
Speaker 8: a better understanding both with the September new home sales

203
00:10:56,679 --> 00:10:58,280
Speaker 8: data that should come out the end of the week

204
00:10:58,720 --> 00:11:01,320
Speaker 8: from China Real Estate investor CORBET. It's a pretty closely

205
00:11:01,360 --> 00:11:04,319
Speaker 8: watched firm that issues monthly estimates at the end of

206
00:11:04,360 --> 00:11:06,880
Speaker 8: each month. And then also we have the Golden Week

207
00:11:06,880 --> 00:11:09,920
Speaker 8: holiday next week on the mainland, which is longtime a

208
00:11:10,040 --> 00:11:13,440
Speaker 8: key new home buying period, and so if people are

209
00:11:13,480 --> 00:11:16,199
Speaker 8: still concerned as to the health of developers, whether if

210
00:11:16,200 --> 00:11:19,000
Speaker 8: they were to buy homes now, whether they would ultimately

211
00:11:19,000 --> 00:11:22,959
Speaker 8: get delivered to them, we might see folks continue to

212
00:11:23,000 --> 00:11:26,559
Speaker 8: wait on the sidelines. Mortgage rates are definitely lower than

213
00:11:26,559 --> 00:11:29,120
Speaker 8: they have been, but that still so far doesn't seem

214
00:11:29,120 --> 00:11:31,160
Speaker 8: to be able to get folks into the market and

215
00:11:31,400 --> 00:11:34,520
Speaker 8: to signing contracts. Kevin.

216
00:11:34,800 --> 00:11:38,240
Speaker 2: Another element to this story as well has been the detentions.

217
00:11:38,240 --> 00:11:42,680
Speaker 2: According to Kaishin of the former CEO and CFO of Evergrand,

218
00:11:43,120 --> 00:11:45,520
Speaker 2: what do we know about that at this stage.

219
00:11:45,800 --> 00:11:49,120
Speaker 8: Yeah, it seems as though the China is moving into

220
00:11:49,160 --> 00:11:51,880
Speaker 8: more of a little bit of a criminal aspect regarding Evergrand,

221
00:11:52,000 --> 00:11:54,680
Speaker 8: not just these two executives, which both left the company

222
00:11:54,720 --> 00:11:58,640
Speaker 8: in mid twenty twenty two after roughly two billion dollars

223
00:11:58,640 --> 00:12:02,040
Speaker 8: worth of security deposits were used to help guarantee some

224
00:12:02,160 --> 00:12:06,120
Speaker 8: other loans, so that ultimately led to their sacking up

225
00:12:06,120 --> 00:12:08,319
Speaker 8: the middle of last year. But we're just trying to

226
00:12:08,360 --> 00:12:11,480
Speaker 8: see where exactly this goes. We had some of the

227
00:12:11,520 --> 00:12:14,600
Speaker 8: staff of the Everground Wealth unit detained within the past

228
00:12:14,640 --> 00:12:17,040
Speaker 8: several weeks, so it does seem as though the government

229
00:12:17,080 --> 00:12:18,640
Speaker 8: is moving in a little bit of a different direction,

230
00:12:18,679 --> 00:12:20,800
Speaker 8: at least as far as Everground goes into looking at

231
00:12:20,800 --> 00:12:21,960
Speaker 8: some potential criminality.

232
00:12:22,960 --> 00:12:25,080
Speaker 1: Okay, Kevin, thank you so much for being with us

233
00:12:25,080 --> 00:12:27,040
Speaker 1: and for updating us that it has been both trying

234
00:12:27,080 --> 00:12:28,839
Speaker 1: to credit Editor Kevin Kingsbury.

235
00:12:29,679 --> 00:12:32,160
Speaker 2: Let's turn to a story next around. Private equity firms

236
00:12:32,200 --> 00:12:35,080
Speaker 2: have been borrowing more debt in this space. This time

237
00:12:35,080 --> 00:12:38,720
Speaker 2: they're layering on debt their own management companies, raising concern

238
00:12:38,760 --> 00:12:42,120
Speaker 2: among some investors about potential risks to the wider industry

239
00:12:42,160 --> 00:12:45,000
Speaker 2: and the financial system. Our reporter Laura Benitez has been

240
00:12:45,040 --> 00:12:47,200
Speaker 2: looking into this and she joins us now in studio.

241
00:12:47,320 --> 00:12:50,400
Speaker 2: Morning to you, Laura, why are private equity firms borrowing

242
00:12:50,440 --> 00:12:52,480
Speaker 2: more and what do funds investors make of it?

243
00:12:53,160 --> 00:12:55,920
Speaker 9: Well, dealmaking has been down year on year, and you know,

244
00:12:55,960 --> 00:12:59,080
Speaker 9: along with fundraising, it has been really really challenging. So

245
00:12:59,240 --> 00:13:02,280
Speaker 9: private equity ensure are having to be much more creative

246
00:13:02,280 --> 00:13:04,400
Speaker 9: with how there is cash and how they shore up

247
00:13:04,440 --> 00:13:07,720
Speaker 9: more liquidity. In terms of how investors are feeling about it,

248
00:13:08,040 --> 00:13:09,920
Speaker 9: I think it was there was a real stigma around

249
00:13:09,960 --> 00:13:12,280
Speaker 9: it a few years ago, but it has become more accepted,

250
00:13:12,320 --> 00:13:16,079
Speaker 9: and especially while conditions are very challenging, I think there's

251
00:13:16,080 --> 00:13:18,480
Speaker 9: an idea there from investors that if it helps returns

252
00:13:18,520 --> 00:13:20,720
Speaker 9: then it could be beneficial. But there's still a lot

253
00:13:20,720 --> 00:13:22,160
Speaker 9: of caution and awareness around it.

254
00:13:22,480 --> 00:13:26,120
Speaker 1: Yeah, what sort of loans are they boring and is

255
00:13:26,160 --> 00:13:27,280
Speaker 1: it becoming a bigger risk.

256
00:13:27,960 --> 00:13:29,760
Speaker 9: So there's two types of loans that we're talking about

257
00:13:29,760 --> 00:13:32,680
Speaker 9: in this story. One is a loan called nav which

258
00:13:32,679 --> 00:13:35,200
Speaker 9: we've written quite a bit about, and that is financing

259
00:13:35,240 --> 00:13:37,520
Speaker 9: at the fund level. Now, what we've written about in

260
00:13:37,559 --> 00:13:39,800
Speaker 9: this story that we've tried to highlight is the increase

261
00:13:39,840 --> 00:13:42,920
Speaker 9: in demand for something called a management company loan, which

262
00:13:42,960 --> 00:13:46,480
Speaker 9: sits at the management company obviously, but with the interesting

263
00:13:46,520 --> 00:13:49,240
Speaker 9: thing there is that the collateral for that debt is

264
00:13:49,280 --> 00:13:52,440
Speaker 9: things like you know, fund fees and management fees, performance fees,

265
00:13:52,520 --> 00:13:54,800
Speaker 9: so you know, in essence, it can be the fund

266
00:13:54,800 --> 00:13:58,480
Speaker 9: manager's you know, salary in a sense. That's what's made

267
00:13:58,480 --> 00:13:59,319
Speaker 9: it so interesting.

268
00:14:00,240 --> 00:14:02,720
Speaker 2: One of the fascinating parts of the story is the

269
00:14:02,760 --> 00:14:05,280
Speaker 2: interest rates that is being paid on these loans as.

270
00:14:05,240 --> 00:14:08,240
Speaker 9: Well, exactly, and that's something that really cool our attention

271
00:14:08,240 --> 00:14:10,560
Speaker 9: when we first started reporting was that the interest rates

272
00:14:10,559 --> 00:14:12,960
Speaker 9: with these types of loans can go up to nineteen percent.

273
00:14:13,240 --> 00:14:15,679
Speaker 9: Now there is a big range, and it's depending on

274
00:14:15,720 --> 00:14:18,800
Speaker 9: the risk profile of the private equity firm, but it

275
00:14:18,880 --> 00:14:20,960
Speaker 9: is I mean, those numbers are very eye watering. So

276
00:14:21,040 --> 00:14:23,240
Speaker 9: it does make you more wearing, you know, it does

277
00:14:23,360 --> 00:14:25,200
Speaker 9: prompt a lot of questions around the risk and the

278
00:14:25,240 --> 00:14:26,680
Speaker 9: extra leverage that's in the system.

279
00:14:26,720 --> 00:14:31,280
Speaker 1: Now, yeah, who is benefiting from this, who's at risk

280
00:14:31,560 --> 00:14:34,400
Speaker 1: of not being paid? Who are the lenders involved.

281
00:14:34,480 --> 00:14:36,840
Speaker 9: It's a really interesting question because at the minute, it's

282
00:14:36,840 --> 00:14:39,920
Speaker 9: a very lucrative market for the lenders because obviously, you know,

283
00:14:40,040 --> 00:14:43,240
Speaker 9: the returns are very, very juicy. At the same time,

284
00:14:43,320 --> 00:14:45,640
Speaker 9: they're the ones at risk because these loans are very

285
00:14:45,640 --> 00:14:47,640
Speaker 9: hard to default on. You know, if you try and

286
00:14:47,720 --> 00:14:50,800
Speaker 9: kind of claim back the collateral, it's things like management fees,

287
00:14:50,800 --> 00:14:53,680
Speaker 9: like we mentioned earlier, so that's quite hard to claw back.

288
00:14:54,440 --> 00:14:56,160
Speaker 9: So you know, there's two kind of sides to this,

289
00:14:56,240 --> 00:14:58,320
Speaker 9: like it's a very lucrative market for these lenders, but

290
00:14:58,320 --> 00:15:00,080
Speaker 9: they're also putting themselves at risk.

291
00:15:01,400 --> 00:15:04,120
Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the

292
00:15:04,200 --> 00:15:07,240
Speaker 2: stories making news from London to Wall Street and beyond.

293
00:15:07,520 --> 00:15:11,480
Speaker 1: Look for us on your podcast feed every morning, on Apple, Spotify,

294
00:15:11,600 --> 00:15:13,480
Speaker 1: and anywhere else you get your podcasts.

295
00:15:13,600 --> 00:15:16,600
Speaker 2: You can also listen live each morning on London Dab Radio,

296
00:15:16,640 --> 00:15:19,359
Speaker 2: the Bloomberg Business app, and Bloomberg dot Com.

297
00:15:19,360 --> 00:15:22,160
Speaker 1: Our flagship New York station is also available on your

298
00:15:22,160 --> 00:15:26,880
Speaker 1: Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty.

299
00:15:27,120 --> 00:15:28,440
Speaker 1: I'm Caroline Hepka and.

300
00:15:28,360 --> 00:15:31,040
Speaker 2: I'm Stephen Carroll. Join us again tomorrow morning for all

301
00:15:31,080 --> 00:15:33,480
Speaker 2: the news you need to start your day right here

302
00:15:33,520 --> 00:15:39,080
Speaker 2: on Bloomberg day Break Europe.