Dividends and Evergrande rivals scamble to delay repayment deadlines

In investing prior to the allocation of your dollars, homework needs to be done to ensure that you lose as little money as possible. Analysts all over the world examine the financial records and try to determine what the next quarter, the fiscal year and a 5 year outlook. In some industries it is relatively easy to do because they operate similar to utilities. In over industries, as long as you can justify your expectations, you need to estimate and hope.

In the property industry, because of lead time and access to capital, the expectations should be closer to the reality. Analysts can track sale of homes, lease of space, or how the industry typically makes money. In China, the property giants have sold millions of apartments and houses and still vast towns and cities are vacant. Who paid for those was never quite determined but they exist.

In an article by Andrew Galbraith and Marc Jones of Reuters, the Chinese property developer giant Evergrande Holdings has affected the entire Chinese property markets and bond prices are falling drastically. The Chinese high yield bond market is a $5 trillion sector and helps drive the Chinese economy. Now that Evergrade is close to defaulting, the Chinese Premier who originally was proud of the work of the company is examining the large lenders to see if they were too close. The large lenders include Citic. Evergrade owes $300 billion in liabilities and that is at risk.

Companies such as CST Group, Modern Land, and Sinic Holdings are now saying they may default on their loans. The bonds have decreased in price by 75% and are trading near 30 cents on the dollar. Companies that were supposed to be better grade such as R&F Properties and Greenland Holdings and seen 20% wiped off their bonds.

Harbin, the capital of northeastern Heilongjiang province was one of the first cities to announce measures to support property developers and their projects.

Linking to dividend paying stocks, when the giant of the industry group is in trouble the whole group will be affected even thought there might be great quality in some of the names. This is when you have to do your homework, at some point in the future the group will sort itself out, with the larger names selling assets. Who buys the good assets at below replacement value are the names to invest in. Eventually, the whole group will become investable again, but for now in an effort to try not to lose money, watch from the sidelines but be ready to pounce on the good stocks at low prices. Eventually quality companies rise in value.

There are more questions than answers, till the next time – to raising questions.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s