Issue 90

At the dawn of America’s Great Financial Crisis of 2008, China began laying the groundwork for the largest property bubble in history, and perhaps a bubble that will continue to expand long into the foreseeable future.

In 2012, Citron Research’s Andrew Left, the renown short-seller called Evergrande insolvent.  A move that got him banned from trading securities in Hong Kong.  At the time, the debt pile was estimated to be at $12 billion.

Fast-forward to last week financial markets were rocked when news broke that Evergrande was going to miss its $83 million interest payment to foreign investors on it’s now estimated $302 billion debt pile.  What’s more, is that it is still unclear if this is the full extent of Evergrande’s debt pile - as the company routinely used subsidiaries to for its projects and financing.  Leading up to last week, news broke that the company had been using small investor money as well as it’s employees to fill in the gaps of it’s spending bonanza – with outraged investors camping outside of Evergrande’s offices.

Beijing’s response to the crisis at hand is unclear on how it will backstop the crisis.  The government seems to be taking it’s time to send a message to it’s corporations, that it will not readily save reckless bad actors, it will inevitably act, the question is how.  In the meantime, investors will face pain.  Currently, some of the biggest foreign holders of Evergrande’s note pile are BlackRock, UBS, and HSBC.  More for the Full Analysis on Wednesday.

Source: Wall Street Journal