Sometimes dragons are resurrected. At least in China where, surprisingly, after months of silence she has started to speak again Huy Ka Yan, at the time the richest man in the country then crashed into theEvergrande's debt abyss, the real estate giant burdened by an exposure to creditors of over 300 billion dollars, including about twenty towards Western lenders. It seemed that his adventure was now on its way to an irreversible decline, seasoned with long journeys to bankruptcy courts or the few comfortable prisons of the communist Celestial Empire. On the contrary, Huy, former president of Guangzhou, champion of China, took the markets by surprise: Evergrande is alive and will not put the yards covering a large part of China up for sale at liquidation prices. Indeed, this year the giant will complete 600 apartments to deliver them to customers, who in most cases have already paid in advance.
Great was there party at the Shanghai Stock Exchange where Evergrande's shares jumped 3 percent. Peanuts, if you think that the stock is 90 percent below its highs. But it is the first real positive news since the company stopped paying its debts in September and then declared default at the end of December. A bankruptcy surrounded by the embarrassment of the authorities, who have imposed a sort of censorship around the case, an attitude that has probably favored the search for a solution in which, it seems, the largest bad debt managers in the country are involved. In particular, according to Bloomberg, the authorities have activated the intervention of China Cinda Asset Management, a financial company that is helping in the restructuring of the debt, guaranteeing favorable conditions to provide liquidity to the group and put it back in a position to restart.
But, even more mysteriously, in parallel with the effort to get the construction sites back in motion, a delicate and silent discussion took place to start the solution to the crux of the external debt of the group, those 20 billion dollars which weighed so heavily on Chinese finance: the risk that Beijing would not honor the debt, even if contracted by a private company, strongly conditioned the performance of the Shanghai stock market and especially Hong Kong. A big problem for the markets, the worst of 2021, which coincided among other things with the divorce from Wall Street, imposed by the crisis with the USA.
In this frame it took place a silent negotiation which involved the Oaktree distressed background, the most tenacious and able to smell good deals when there is an air of crisis, a miniature Venice under construction near Shanghai. And even Inter, because what pushed Howard Marks, the disciple of Michael Milken who leads Oaktree, towards China were the difficulties of Suning, the football partner of Huy Ka Yan who owns the Nerazzurri club. Oaktree first granted a loan to Suning, through the Luxembourg subsidiary, which allowed Inter to get by, then decided to go and see Evergrande's situation up close.
A madness, at least in appearance: on the one hand, the group's conditions advised against the deal, on the other, given the risk of default, no one thought it sensible to rely on Chinese justice in such a sensitive matter from a political point of view. Nobody but Marks. "If I compare it with Europe, the United States or Japan - he says - China seems to me a somewhat impulsive teenager who has the best years ahead of him". Hence, regardless of the danger of losing everything, the financier decided to lend $400 million (later increased to one billion dollars) to one of Evergrande's most ambitious projects: the Castle Project, an immense area near Shanghai on the shores of the Yellow Sea (2,2 million square meters) on which to build 294 apartments Venetian-style luxury.
It is a pity that in the meantime Evergrande has stopped paying interest, as has already happened with the other creditors, trusting that they would be content to get in line, waiting for a solution to be agreed on at a general level. But Oaktree decided to instead sue the real estate giant in court in Hong Kong without being afraid to face the challenge away. And it went well. The judge, as required by law, assigned control of the castle to the speculative fund in the absolute silence of the government, which was disinterested in the game.
In short, Xi Jingping has decided to defuse, without fanfare, the Evergrande bomb. Even with the help of vulture funds.
