default - What We're Reading - StockBuz2024-03-29T06:14:25Zhttp://stockbuz.ning.com/articles/feed/tag/defaultBeware The Next Defaulthttp://stockbuz.ning.com/articles/beware-the-next-default2015-12-15T02:19:05.000Z2015-12-15T02:19:05.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>Presented without commentary other than ask yourself, "how much longer?"</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291250?profile=original"><img class="align-full" src="http://storage.ning.com/topology/rest/1.0/file/get/1291250?profile=original" width="468"></a></p></div>Possibly The First Truly Crippling Chinese Real-Estate Defaulthttp://stockbuz.ning.com/articles/possibly-the-first-truly-crippling-chinese-real-estate-default2015-01-11T04:23:44.000Z2015-01-11T04:23:44.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_blank" href="http://l3.yimg.com/bt/api/res/1.2/gB1JQZB_1_82e_YuAPpf6g--/YXBwaWQ9eW5ld3M7cT04NQ--/http://globalfinance.zenfs.com/en_us/Finance/US_AFTP_SILICONALLEY_H_LIVE/We_May_Have_Just_Witnessed-dd65118af9b2a14c5d0d1ccf549945ae"><img class="align-left" src="http://l3.yimg.com/bt/api/res/1.2/gB1JQZB_1_82e_YuAPpf6g--/YXBwaWQ9eW5ld3M7cT04NQ--/http://globalfinance.zenfs.com/en_us/Finance/US_AFTP_SILICONALLEY_H_LIVE/We_May_Have_Just_Witnessed-dd65118af9b2a14c5d0d1ccf549945ae" height="197" width="262" /></a></p>
<p><span style="color: #99cc00;">For the love of Pete.  I can only imagine what's going through the minds of investors.  First fears of energy name defaults and now China's real estate (bubble) may have it's first big default?  It'll be a fun Sunday night when futures open. </span></p>
<p>The Chinese real-estate developer Kaisa Group Holdings had a healthy balance sheet, according to investors and observers alike. It was the top-rated residential-property-sales firm in the city of Shenzhen, in the first half of 2014. It was known for fast, reliable work.</p>
<p id="yui_3_16_0_1_1420949891088_1810">But on Thursday, Kaisa appeared to become the first Chinese development firm to default on offshore debt, missing a $128 million interest payment on $500 million of debt to foreign investors. Representatives of the company say they aren't sure whether the payment was made, <a data-rapid_p="9" target="_blank" href="http://www.wsj.com/articles/chinese-developer-appears-to-default-1420739433">The Wall Street Journal reports.</a></p>
<p id="yui_3_16_0_1_1420949891088_1812">Consider this a slap in the face to investors chasing yield around the world and finding it (or so they think) in emerging-market junk bonds. Back in 2013, Kaisa and its fellow Chinese developer Country Garden received $28 billion of orders for a combined $1.25 billion of high-yield bonds. Kaisa promised that its bonds <a id="yui_3_16_0_1_1420949891088_1826" data-rapid_p="10" target="_blank" href="http://www.businessinsider.com/investors-love-emerging-market-junk-bonds-2013-1" name="yui_3_16_0_1_1420949891088_1826">would yield a rate of 10.25%</a>. Investors were thrilled.</p>
<p id="yui_3_16_0_1_1420949891088_1814">And things seemed fine. In June the company said it had over $1.5 billion in cash. On Jan. 1 the number was calculated at $772 million — even though the stock had been halted in December and Kaisa's stock had fallen more than 48% in the month leading up to that.</p>
<p>With the cash the company said it had, though, Kaisa's $128 million interest payment should have been doable.</p>
<p id="yui_3_16_0_1_1420949891088_1820"><a target="_blank" href="http://l1.yimg.com/bt/api/res/1.2/laxOOx6AsWSOkFCVLNkX3Q--/YXBwaWQ9eW5ld3M7cT04NQ--/http://globalfinance.zenfs.com/en_us/Finance/US_AFTP_SILICONALLEY_H_LIVE/We_May_Have_Just_Witnessed-27272dd5a1a628f49b35198c3de4e33b"><img class="align-left" src="http://l1.yimg.com/bt/api/res/1.2/laxOOx6AsWSOkFCVLNkX3Q--/YXBwaWQ9eW5ld3M7cT04NQ--/http://globalfinance.zenfs.com/en_us/Finance/US_AFTP_SILICONALLEY_H_LIVE/We_May_Have_Just_Witnessed-27272dd5a1a628f49b35198c3de4e33b" height="232" width="410" /></a>But it was not because of numerous factors, not least of all the Chinese economic slowdown and the country's sluggish housing market. Executives have quit since the company released an ominous statement in December saying problems with government permits would harm cash flow.</p>
<p id="yui_3_16_0_1_1420949891088_1822">Those problems started back in October, when the federal government began investigating Shenzen officials for corruption in the housing market. Some said Kaisa's founder, Kwok Ying Shing (who has since quit the company) was unreachable — <a data-rapid_p="14" target="_blank" href="http://www.businessinsider.com/agile-property-holdings-2014-10">not a terribly uncommon thing in China</a>, but certainly a bad sign for the company. Kwok denied that he was missing.  It seems, however, that this debt payment is.</p>
<p id="yui_3_16_0_1_1420949891088_1837">Expect this to seriously shake investors, and for this to affect a  <a data-rapid_p="15" target="_blank" href="http://www.businessinsider.com/chinese-companies-in-worse-shape-than-2008-2014-9">Chinese corporate sector that is already overleveraged and hungry for cash and investments.</a></p>
<p>Courtesy of <a href="http://finance.yahoo.com/news/may-just-witnessed-first-truly-171855787.html" target="_blank">YahooNews</a><strong id="yui_3_16_0_1_1420949891088_1840"><br /></strong></p>
</div>Of Shippers And Debt on Germany's Doorstephttp://stockbuz.ning.com/articles/of-shippers-and-debt-on-germanys-doorstep2013-12-19T03:09:49.000Z2013-12-19T03:09:49.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><span style="font-family: times new roman,times;"><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290266?profile=original"><img class="align-left" style="padding: 5px;" src="http://storage.ning.com/topology/rest/1.0/file/get/1290266?profile=RESIZE_480x480" height="162" width="330"></a><span style="color: #ccffcc;">It's a new day and age for shippers however efficiency is just the tip of the iceberg. Clearly when credit dried up in 2007, shipping rates plummeted and the shipping industry was in a world of hurt. Many losing over 90% of their market cap heavily indebted. Riddle me this: If potential new investors think their loans are at risk for large haircuts, then the market for bank debt would dry up again. Didn't we watch that movie in 2008-09? But what if the risk on the existing debt is no longer with the shippers.........but with the bank loans attached to old, outdated, fuel-hog, uneconomical ships? That puts shippers (and banks) in an whole different light. Checkout these excerpts from MauldinEconomics with link to full story below. My edits in in purple, underlined and bold. Read on.....</span></span></p>
<p><span style="color: #ffff00;">When</span> the bottom fell out in the credit crisis as international trade financial banking collapsed, shipping came almost to a standstill, and ships were barely able to cover their operating costs, there was so little cargo. Remember the pictures of hundreds if not thousands of ships moored in the South Pacific islands, unable to find cargo? Story <a href="http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html" target="_blank">here.</a> I wrote a few paragraphs about them at the time.</p>
<p>New shipbuilding quickly fell as well, with stories in the press of no new ship orders in 2009. But governments wanted to make sure workers had jobs, so subsidies and new ship designs soon came into play. Making a long and fascinating dinner story short, it turns out that you can now buy a container ship that sold for $40 million in 2008 for $23 million today. That, of course, is a significant operating-cost advantage for new ships. But new designs also make <strong>new ships 25-30% more fuel-efficient!</strong></p>
<p>A ship is leased for a certain amount per day to cover operating expenses. Fuel costs are extra. Depending on the size of the ship, the savings can be up to $7,000 a day,<br> money that goes directly to the shipper. A ship that is 60% of the price and costs significantly less to operate can make money at far lower shipping prices, and not surprisingly gets more of the shipping market share. <span style="text-decoration: underline;">The result is that many container ships that were built pre-2009 are now simply uneconomical to operate.</span> Depending on the ship, some cannot even generate enough income to cover their operating costs. (Please note that not all pre-2009 ships have issues; but a lot, if not most, of them do.) So those ships are clearly upside down on their loans. I was telling this story last week, and one trader said, "So the investors had to put in more money?" Good question.</p>
<p>As it turns out, the German banks, for the most part, actually make the capital guarantee part of their loan commitment. The investors lose 100% of their money but are able to walk away, kind of like defaulting US homeowners can in most states. <span style="text-decoration: underline;">The banks take the loss.</span> Sure, they own the ships, but most are basically so much scrap metal, destined for dismantling in India, Pakistan, or Bangladesh.</p>
<p>How bad is it? Banks are taking control of ships, marking them down to a fraction of their cost, and then financing 100% of the cost of selling them to <span style="text-decoration: underline;"><strong>Greek</strong></span> shipping companies. Can we say irony? Greek shipping families basically operate tax-free (a point I wrote about some four years ago) and take a very long-term and conservative view. They sold ships to the Germans at the top of the market for very nice premiums and are now buying them back at significant discounts.</p>
<p>The critical point is that a "European bank health check may trigger additional provisioning as loans benefiting from remediation measures – such as covenant waivers or an extension of repayment schedules – may be re-classified as problem loans under the new standard of the European Banking Authority...." (Reuters)</p>
<p>As Evans Ambrose-Pritchards wrote in <a href="http://www.telegraph.co.uk/finance/newsbysector/transport/9473476/World-shipping-crisis-threatens-German-dominance-as-Greeks-win-long-game.html" target="_blank">The Telegraph</a> last year:</p>
<p><em>"Most of the 20 top banks for the shipping industry have stopped all funding…. Shipping is the biggest casualty of the new regulations. All the banks are reducing their portfolios, using any breach of covenant to get out of contracts. The second-hand ship market has broken down,"</em> said Mr Smith…. Both bulk ships and tankers are trading at lower levels today than during the worst moments of the 2008-09 crisis. The odd twist is that Greek shippers are the ones quietly snapping up bargains from distressed German companies.</p>
<p><em>"The Greeks are sitting on a pile of cash. They are in their own special cocoon completely removed from Greece's political troubles," said Dimitris Morochartzis from Lloyd's List Intelligence. "They played their cards really well during the boom, selling ships for a profit at the top of cycle. They are now buying them back for a fraction of the price,</em>" he said.... Giorgos Xiradakis from consultants XRTC said Greek firms are teaming up with Chinese banks. Chinese premier Wen Jiabao pledged $5bn in loans to the Greek shipping industry two years ago, part of a twin-headed plan to gain a stronger foothold in the EU market and to provide vendor financing for the Yangtze shipbuilding industry – currently in dire straits….</p>
<p>German shipping experts say that two-thirds of the country's marine fleet is in financial distress. If the crisis drags on much longer, the <span style="text-decoration: underline;"><strong>Greeks may leapfrog ahead to become world leaders in container shipping.</strong></span> The irony of prudent Greeks cleaning up after a reckless debt spree by the Germans is lost on nobody.</p>
<p>Fast forward a bit:</p>
<p>......if potential new investors think their loans are at risk for large haircuts, then the market for bank debt will dry up again. Didn't we watch that movie in 2008-09? Read the full indepth article <a href="http://email.mauldineconomics.com/wf/click?upn=n5W239CQZ-2BNzU8IvtdMtix6OI2jTCxm5e82ofXRPOIY-2BQFEy8PicvDArWs-2Bt4MZ1J9-2BY0LEpcjlJs-2BCDPscindIUMkBx3qkbeUQuIqRX1Yg-3D_JKLR1FBU0q0IqxJGrTtbPy0jh07eeWdb9hfaEUCFT-2BL8RLOx2fX4X3xvzpcqpc-2FYQaqjmjH5XgpFEZWRfS-2BDg9nW-2BjPH1CEZfm06hEQv8Yp-2FcO3sm-2FNofpTkhMZ-2Bn714l9vvruL2lubt7THISBUH8Frj4nBFSYjeV0rLjFKimeqVdeyVsG6mudFMd14RIbyg9z5pZXADwLZZjczXaYHNRYQym-2FaPc2q4jkVHmYJqsSASUp4FDmXy8z80TcG1DVtj" target="_blank">here</a></p>
<p>Full disclosure long $NAT as a drawer stock as recommended here last Summer.</p></div>