Chinese Real Estate Developer And Crooked Bond Rating Agency Deceive Wall Street/Main Street In An Epic Shell Game
By Stan Szymanski
When I was hired by Morgan Stanley in 1996 as an Account Executive, the firm sent me to Manhattan for two weeks of training. How to sell, how to relate to clients, learning about compliance and a lot more. With fond trepidation, I recall being high up in the World Trade Center (can’t remember if it was 1 or 2) during that time in the Morgan Stanley Offices when WTC was still standing.
Juxtapose the opportunity for training I was receiving at Morgan Stanley against having the opportunity (in my off time) to watch a shell game on the street in ‘The City’. Seems simple enough. See ball under shell. Follow ball under shell. When shells stop moving point to the one with the ball underneath it. In reality, it is a lot harder than it seems, especially when the purveyor of the game is adept at public deception.
Lately, I have been asking the question of ‘where’s the money?’ when it come to China Evergrande Group and all their interest payments to offshore bondholders. Public deception apparently not only by Evergrande, but also apparently by its paying agent and virtually all of the financial press around the world with the notable exception of Dr. Marco Metzler and DMSA where he serves as a senior analyst. DMSA, (as they are Evergrande bondholders), are preparing action against the developer. From its November 10, 2021 press release: …’DMSA itself is invested in these bonds and has not received any interest payments until today’s end of the grace period. Now DMSA is preparing bankruptcy proceedings against Evergrande and calls on all bond investors to join it.’…
So virtually all of the financial media has perpetuated the ‘story’ that Evergrande had made its past due interest payments on its offshore bonds when, according to DMSA and Dr. Metzler, they had not.
Under which shell is the interest payment, if there is one at all?
What I would like to highlight today is a different Chinese Real Estate Developer and a Chinese Rating Agency who are apparently running a shell game that the system is using these actors as covers (shells) to serve as subterfuge to the public and institutional investor alike.
First, the scoundrel known as Yango Group. In ‘China developer Yango Aims To Avoid Defaults With Bond Swap Backed By Its Chief’ by Andrew Galbraith dated November 1, 2021 (Reuters via Yahoo): …’Chinese homebuilder Yango Group offered on Monday to exchange some U.S. dollar bonds for new notes personally guaranteed by its chairman as it struggles to free up cash and avoid defaulting on upcoming debt payments.’… The article goes on to explain:
…’Yango is offering $25 in cash and $1,000 in new notes for each $1,000 of existing bonds exchanged, it said in a Hong Kong bourse filing. The exchange offer applies to its U.S. dollar notes due in February 2023, January 2022 and March 2022, which have an outstanding face value of $747 million.
The new bonds are personally guaranteed by Lin Tengjiao, Yango’s founder and chairman, the filing said. The Hurun Global Real Estate Rich List of March 2020 had estimated Lin’s personal fortune at $2.4 billion.
Yango said it is also seeking the support of investors to change the terms of its five other outstanding dollar bonds.’…
Did you see that basically, Yango can’t/won’t pay its interest and principle payments? That they offered bondholders (for each $1,000 face value) $25 in cash (that’s 1/4 of 1% of face value-not even the interest due) and to swap the original Yango bond for a bond, not backed by the earnings ability of the company (Yango), but backed by the CEO of Yango!? I don’t care what they say what the value of his ‘fortune’ is-real estate in China is down significantly and may now have potential illiquidity issues-So tell me-how does a bondholder get paid???
Is the CEO of a company that can’t pay it interest and principle when due now supposed to be -more creditworthy- than the company he works for??? I hardly think so.
As if the report by Mr. Galbraith could not be any more incredulous, the article goes on: …’Domestic rating agency Dagong Global Credit Rating Co on Monday cut its outlook on Yango to negative due to uncertainty over the source of funds for debt repayments. However, it kept the ratings of the company and its onshore bonds unchanged at “AAA“.
Please now turn ‘on’ the implied (but invisible) sarcasm control on this writing up to ‘high’ as I say: ‘Thank goodness that this Chinese rating agency cut its outlook to ‘negative’-Dagong is doing a really good job alerting the public as to the dangers of the creditworthiness of Yango…Boy, Yango is really lucky to still have a ‘AAA’ rating on their bonds! (Now with both hands turn the sarcasm control back to zero…)
Do you know that a ‘AAA’ rating on your bond implies that you have the -highest- creditworthiness that can be awarded and is the same rating that is given to a bond that is insured? How can a company who will not pay its bills have anything but the -lowest- rating of creditworthiness? I dare say that if this were Standard and Poor, Moodys or Fitch (the standard in America and much of the world) doing the rating, that in all likelihood this company would be rated as a ‘junk bond’ and be declared ‘bankrupt’ (now, these rating agencies are far from perfect-just watch the movie ‘The Big Short’ to verify-but they are a far cry from Dagong).
In an interview from The Corner dated August 13, 2012 titled “We Need A New Ratings System Under International Supervision”, the Chairman of Dagong, Guan Jianzhong, defends the independence of his ratings agency against the US-biased most powerful financial grade houses:
From the interview at The Corner:
…’Which are the differences between Dagong and its Western rivals: Moody’s, Fitch and S&P? We are essentially different. In the case of these three agencies, they try to protect US interests. The standards they use are the result of their views and values accompanied by a lack of supervision. On the opposite, Dagong is based on fairness.’… further in the article …’The current international rating system is having consequences in China as the main buyer of debt… The system is having terrible consequences for the international economy so we need a new system that helps the development of China’s economy.’…
So there you have the CEO of the rating Agency (Dagong) that the three main rating agencies (S&P, Moodys and Fitch) are unsupervised and that in his view they need a new rating system that helps the development of China’s economy.
So in the case of Yango Group, that is just how Dagong ‘rated’ Yango. Dagong gave Yango a AAA rating when they deserved to be labeled as ‘BANKRUPT’. That is not fair or honest for anyone involved. This is alleged malfeasance and insolvency masquerading as a viable concern.
Is there now any reason why I questioned the viability of Evergrande in the six articles I wrote about that company (find them at the EA blog)? Can you understand why Dr. Metzler and DMSA would file bankruptcy against Evergrande when purportedly there was no interest received by an actual offshore bondholder (DMSA)? Can you see that in the words of the Dagong chairman China wants to have a system that favors China? Can you see that in recent events with Yango Group that would assertedly equate to impropriety, misbehavior and receivership?
Can you see that we are now in a world where the majority of the reporting press outlets said that Evergrande made its interest payments on bonds when it did not as reported by DMSA? None of the authorities in the U.S. (to my knowledge) stood up and called BS on the Chinese even when over $20 Billion of offshore (likely mostly US) money has been invested in Chinese Real Estate Debt.
Potentially, some your money is at risk as it may be invested in mutual funds that own these bonds. Potentially, more money of yours may be at risk because an institution you entrusted with your money may own derivatives involving these Chinese Real Estate Developers. In the October 29, 2021 DMSA press release in discussing the possible impact of an Evergrande bankruptcy Dr. Metzler concludes by saying … “The Great Reset – the final meltdown of the current global financial system – has long since ceased to be a purely intellectual thought experiment,”….If this happens, a meltdown of the global financial system, just how much of your money is at risk?
Evergrande is one shell, Yango Group another and Dagong yet another. There is an organization who is the purveyor of the shell game whose goal is to go home with all the shells, the ball and your money-just like the guy on the street in Manhattan running his game way back in 1996. Please remember that if you play the game, there is no referee, no one to protect you. Trust The Lord. Don’t play a game you don’t understand. Food, Water, Shelter, Energy, Protection and if you have the means, physical Precious Metals to provide for you and yours in troubled times.
“Why should fools have money in hand to buy wisdom, when they are not able to understand it?”
Proverbs 17:16 NIV
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Stan Szymanski (or Encouraging Angels) is not a medical doctor. This is not medical advice. In all matters pertaining to the health and care of a human being consult a medical doctor. This is not legal, financial or personal advice. Consult appropriate professionals in those fields for that type of advice.