NEW YORK, Jan. 19, 2022 /PRNewswire/ -- Greifenberg
Digital, a member of the IMTE Group, commented today on the
risks to Chinese property bonds as gauged by its suite of
quantitative models.
"Large parts of China's
property bond market are still too risky for investors,"
Jerry Lucas of Greifenberg Digital
said after the bulk of US dollar bonds of Chinese property
companies closed at new lows. The Bloomberg Index of high-yield
Chinese bonds denominated in US currency (Bloomberg ID I36616
Index) closed January 18 at 53.7,
down from a March 2021 peak of 120.
"Although bonds of some property companies with stronger balance
sheet have risen in price today [January
19], more leveraged developers remain subject to very high
default risk, according to our models."
US dollar bonds of Country Gardens, one of the stronger
developers, rose in Hong Kong
January 19 on hopes of easier
regulatory and monetary policy, according to financial news
reports.
"For most developers, the equity buffer for creditors remains
extremely thin, and default risk remains elevated. More clarity is
required both from issuers and regulators before the riskier part
of the property market becomes attractive," Lucas added.
Greifenberg Digital recently released Credit AI™, a
suite of risk analytics that applies Artificial Intelligence/Big
Data technology to a universe of 30,000 Chinese corporate bonds.
Credit AI models forecasted the crisis in China's property bond market last year,
according to a Greifenberg White Paper released on December 7.
"The equity buffer on the balance sheets of the stronger
property companies is shrinking as they sell assets and raise
equity at a discount," said Lucas, a managing director at
Greifenberg. "The shrinking equity buffer in turn leaves the
property sector closer to default."
China's high yield market lost
ground in the second half of 2021, and continued to show losses
during the first two weeks of January
2022.
Sunac China Holdings Limited (1918.HK) January 12 issued equity in Hong Kong at a 15% discount to the previous
day's close, and its stock led the property market down.
Credit AI uses four models, including a contingent claims
analysis module that prices the issuer's option to default. Less
equity on the balance sheet and higher equity volatility increase
the probability of default in this model, based on the work of
Nobel Prize winner Robert
Merton.
The Greifenberg models also analyze sentiment via Natural
Language Processing of news and social media and apply machine
learning to balance sheet analysis.
"The Merton approach gives us a real-time indicator of credit
risk," Lucas added. "What we observe from the equity price and
volatility of the more vulnerable property companies tells us that
default risk remains elevated."
"In the case of Fantasia Holdings Group Co., Limited (1777.HK),
distance to default as calculated by the contingent claims analysis
model had fallen for six months before Fantasia's bond price fell
in July 2021. That's been true for
most of the distressed property companies. One or more of the
Credit AI models sent out a warning signal well in advance of the
event," Lucas added.
"If we look at where Fantasia's default risk is trading today,
we see that there has been no real improvement, and its bond price
continues to bounce along the bottom."
"We see a nearly identical pattern in the case of Kaisa Group
Holdings Ltd (1638.HK). For example, Kaisa's distance to default
had been shrinking since the middle of June
2021, but the bond price didn't react until October.
"Now we see that distance to default remains extremely low, and
Kaisa's bond price is following it down."
"The market is telling us that the underlying assets of the
highly levered property companies are still subject to price
discovery. There are a lot of unknowns, including the extent to
which state-owned banks will lend to distressed property companies,
and the terms on which state-owned enterprises will buy assets from
weak hands. The Chinese government is likely to favor homebuyers
who have already made down payments for apartments and suppliers
over bondholders. Net, we think investors should wait for clarity
before bargain hunting."
About Greifenberg Digital Limited ("Greifenberg")
Greifenberg is a Canadian company engaged in the business of the
credit research on China's fixed
income market. Greifenberg has developed an innovative AI/Big
Data suite of corporate bond analytics focused on the Chinese
market. For more information, please visit
www.greifenbergcapital.com.
About Integrated Media Technology Limited
("IMTE")
IMTE is an Australian company engaged in the business of the
manufacture and sale of nano coated plates for filters, the
manufacturing and sale of electronic glass, operating a platform on
trading in digital assets and financial research. For more
information, please visit www.imtechltd.com.
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