SINO OCEAN

[Jwdool]

This is an interesting note for those interested in the Chinese property recovery story. The bond is currently trading at 30c. Up until last week, it was also paying a coupon of ~6.9%.

The ISIN is: XS1677024579, it can be traded in USD on IBKR and through private bank brokers.

On 21st March Bloomberg reported that the coupon was being deffered, but it turns out that Sino have probably issued the notice too late and in fact the coupon may now actually have to be paid. Some holders have actually received payments from the custodian (myself included).

news.bloomberglaw.com/capital-markets/chinese-developer-sino-oceans-bonds-plunge-after-coupon-delay

Having spoken to Investor Relations today, it is increasing looking like a mess up. The good news is that the company look like they were going to re-instate coupons from September anyway - which is consistent with improvements in sales/ volume data on Chinese properties.

This bond certainly isn't for everyone, but the 23% perpetual, cumulative interest income and potential >300% upside is an attractive way to play the China property recovery story, helped by the fact the equity is supported by China Life. This is a very attractive note at these prices.

[Jwdool]

Bloomberg have just flashed that Sino Ocean will be making the coupon payment for March after all.

It does pay sometimes to get in touch with Investor Relations. I suspect the paper will get bid higher on this news. They had not expected such a dramatic reaction to the announcement of a suspension.

[Jwdool]

Sino Ocean perpetual bonds up around 50% today. It wasn't a bad tip - from last week!

What is interesting about this story - which is now on Bloomberg - is that when the issuer deferred the coupon payment, the bonds nearly halved from ~45 to ~25 this morning. When they agreed to re-start, the bonds moved back again. The perpetual issue isn't small, its around $600m.

In the interview I did with Bloomberg this morning, I pointed out that other issuers should learn the importance of how a suspension of a coupon/ div can have a disproportionate impact on the pricing of securities and the interest cost that issuers would need to pay. Sino are unlikely to try and suspend again, given their experience of what just happened - meaning these bonds are still pretty good (albeit not as good) value.

There are other issuers all now proposing restructuring deals that do not involve haircuts to holders - including Sunac yesterday. For those who really like a punt, you can still buy senior notes in Zhenro at less than 9c in the USD - all available on Interactive Brokers. I'd say it was a 50:50 for full repayment, but the risk/ reward is very favourable.

[BondSquared]

Any recent insights into distressed chinese property (or other) debt? Would like to get involved in that sector.

[Jwdool]

There are some remarkable things going on with Chinese property senior securities - almost all of it is bad news save for the anticipated Chinese government stimulus.

Home sales had looked perky at the start of the year with an anticipated post covid bounce. We say >29% growth in sales for the last couple of months, but more recently this has fallen below 7%.

The government measures the market is expecting include reducing down payments, lowering agents commissions and a relaxation of other restrictions. The market is also expecting reductions in interest rates to keep the market from falling.

On the one hand, the property sector is politically significant - given it contributes so much towards GDP. It has been estimated the amount of property developers debt to GDP is ~12%. For this reason, there are good political reasons to expect China to intervene in the market in order to stablise things. On the other hand, nearly all of the major developers have gone into default. The following link will give you a developer-by-developer update - and it's pretty accurate - it is periodically updated.

bondsupermart.com/bsm/article-detail/a-list-of-30-key-chinese-developers-latest-development-ongoing-update-RCMS_255744

The thing about the market at the moment is that investing in the bonds (I wouldn't touch the equity) is pretty much a binary affair. Either they sort it out -in which case you'll earn up between 2:1 - 20:1 return (depending on the quality of firm) or you will lose your money in an insolvency. Obviously the higher the quality (State backed firms are the best bet), the more likely you are to come out a winner.

The vol is awful, with name such as Sino Ocean (partially state backed) going from 8c to 60c and back down to 14c all in the space of a few weeks. It really is the wild west when it comes to pricing - so be careful. Most of the names can be traded in 200k nominal USD lots on IBKR.

Good luck.

[BondSquared]

now trading at 5 cents.

Worth a punt, if only based on a single coupon payment decision?

[Jwdool]

The market is pricing for certain default and restructuring. Interestingly the bonds have fallen far further than the equity, but this is China and things that make sense elsewhere don't always make sense in China.

I'd be flabbergasted if coupons were paid for a long while, but if you think these names survive the on-coming Chinese property depression (and I think it will be awful for a while), then this is a very cheap entry level. I understand the coupons are cumulative and there is an equity dividend stopper - so if this trade works, i suspect it will be one of your finest!

Good luck.

https://www.nasdaq.com/articles/bonds-o ... ring-fears

[Jwdool]

Chinese property equities have shot up on the stimulus news:

https://www.reuters.com/markets/asia/ch ... 023-07-24/

Details on increases can be found here:

https://www.scmp.com/business/banking-f ... t-fans-big

Sino Ocean equity currently trading up 14% on the day. The bond market, however, has barely yawned on the news. It is possible to buy Sino Ocean perpetual senior bonds at 2c in the $. That's a 98% decline from par. If there was any credibility in the Chinese announcement, you'd imagine we'd see the bonds trading higher. The debt over-hang is so large, none of the market participants really believe it. The obvious trade would be short equities, long bonds - but this is China where the normal rules don't appear to apply.

[Jwdool]

For those of you who think UK/ US/ EU/ Swiss capital rules are confusing (per AT1), Sino Ocean equity today has gone up 83%. In the last couple of days the shares have traded from around 40c to 83c. Meanwhile the perpetual bonds (XS1677024579) are trading at 1.95c/$1.

The perpetual bonds have a dividend stopper on the ords, although the interplay - given there is an off-shore element isn't direct. See: https://www.bondsupermart.com/bsm/bond- ... 1677024579

Either the buyers of the shares are daft, or the off-shore perp bonds are trade of the century. I have no idea which - but certainly worth a look. It isn't often you see this sort of dislocation between asset classes. Sino Ocean is one of China's largest property companies and owed by SOEs.