Alice Huang,ย Dorothy Ma,ย andย Pearl Liu of Bloomberg report on how a 99% bond wipeout handed hedge funds a harsh lesson on China. They write:
From afar,ย China Evergrande Groupย had all the makings of a killer distressed-debt trade:ย $19 billionย in defaultedย offshore bonds;ย $242 billionย in assets; and a government that appeared determined to prop up the countryโs faltering property market. So US and European hedge funds piled into the debt, envisioning big payouts to juice their returns.
What they got instead over the course of the next two years is a harsh lesson in the dangers of trying to bargain with the Communist Party. The talks are now dead โ a Hong Kong court has ordered Evergrandeโsย liquidation, and the bonds are nearly worthless, trading in secondary markets at just 1 cent on the dollar. […]
โAuthorities are not likely to allow offshore claimants to secure valuable onshore assets while effectively insolvent developers struggle to meet politically tense onshore obligations,โ saidย Brock Silvers, managing director at private equity firm Kaiyuan Capital. โThis is a serious setback for Chinaโs still-developing credit markets and can only exacerbate declining market sentiment as foreign capital increasingly seeks lower risk outlets.โ
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