One of the most successful investors in the subprime debt market is avoiding debt securities China Evergrande Group, citing the risks arising from high discounts on assets and liabilities that may not be fully reflected in the developer’s balance sheet.
Zhang Zhijun, president of DingNuo Investment Management, in Beijing, says his manager has not bought Evergrande bonds since May, after the maturity of the bonds it already had in its portfolio.
Two of his company’s credit funds have outperformed 99% of their peers this year, with one returning 84.7% as of Dec. 17, according to Simuwang.com, a Chinese financial data provider.
Those gains were mostly made from rejected bonds from struggling companies, including China Fortune Land Development and chip maker Tsinghua Unigroup Co., Zhang said. His company had more than 568 million yuan (US$89 million) in assets under management on Tuesday.
“We tried to measure the recovery rate of Evergrande’s onshore bonds, but we gave up on buying them because it has wealth management and financing products off its balance sheet,” Zhang said.
Evergrande did not respond to requests for comment about its finances.
Zhang’s wariness of Evergrande contrasts with the more optimistic assessments by international investors of distressed corporate debt, including Marathon Asset Management.
The developer officially went into default for the first time earlier this month, after failing to pay coupons for two bonds. The company, which disclosed more than $300 billion in total liabilities in June, said it is “actively” engaged with offshore creditors in a restructuring plan.
Zhang says he will continue to look for investment opportunities in non-performing debt, particularly shorter duration bonds, even as risks remain high.
One of the healthiest companies in the industry, Shimao Group Holdings Ltd. has recently seen its bonds plunge to record lows on concerns over payment difficulties. Elsewhere, Sunac China Holdings Ltd. also faced liquidity risk. The potential failure of these companies would test the survival skills of larger groups like Country Garden Holdings Co., Zhang said.
“We tried to measure the recovery rate of Evergrande’s onshore bonds, but we gave up on buying them because it has wealth management and financing products off its balance sheet,” Zhang said.
Evergrande did not respond to requests for comment about its finances.
Zhang’s wariness of Evergrande contrasts with the more optimistic assessments by international investors of distressed corporate debt, including Marathon Asset Management.
The developer officially went into default for the first time earlier this month, after failing to pay coupons for two bonds. The company, which disclosed more than $300 billion in total liabilities in June, said it is “actively” engaged with offshore creditors in a restructuring plan.
Zhang says he will continue to look for investment opportunities in non-performing debt, particularly shorter duration bonds, even as risks remain high.
One of the healthiest companies in the industry, Shimao Group Holdings Ltd. has recently seen its bonds plunge to record lows on concerns over payment difficulties.
Elsewhere, Sunac China Holdings Ltd. also faced liquidity risk. The potential failure of these companies would test the survival skills of larger groups like Country Garden Holdings Co., Zhang said.
Source From: Moneytimes
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