$TSLA - $1,000,000,000,000.00 Market Cap in 2022

[TruckElectric]

TSLA
Market Cap: $754 billion
Sector: Automotive (US)
Estimated year to hit $1 trillion: 2022
Average annual growth rate: 123.87%

https://markets.businessinsider.com...-dollar-market-cap-valuation-companies-2021-9

 

[Ogre]

Average annual growth rate is a crappy metric for a growth company. Growth tapers over time.

If current market cap is $754b (didn't check), then we just need 33% growth this year which seems entirely possible. I kind of expect we're going to see a big growth spurt when the 4680 issues are settled. Giga Berlin and Tera Texas are likely going to goose things too.

Tesla is a crazy stock.

 

[TruckElectric]

Average annual growth rate is a crappy metric for a growth company.

Company growth?

If current market cap is $754b (didn't check),

As of Friday

Mkt cap

751.91B

Tesla is a crazy stock.

Explain "crazy stock"? It is a Tech stock listed on NASDAQ. Pretty normal considering......

 

[Ogre]

Company growth?



As of Friday

Mkt cap

751.91B

Explain "crazy stock"? It is a Tech stock listed on NASDAQ. Pretty normal considering......

Growth slows over time. We're never going to see 5x growth per year with Tesla again like we did not long ago. Thems the breaks. You can't value a fast growing company based on average growth because then you end up in a situation where a trillion dollar company is expected to be a 5 trillion dollar company in a year.

Crazy like Amazon or Apple. Exceedingly hard to value reasonably. Lots of assumptions one way or the other about future growth. Where is the 4680 going?

I own Tesla because Musk has done amazing things and I expect him to continue to do amazing and stunning things. But it's hard to put a dollar amount on that.

(Wasn't questioning market cap number, just as I said too lazy to look at the moment, thanks)

 

[CyberGus]

That growth is already baked into the current stock valuation. Tesla will need impressive growth just to maintain the current price.

I remember riding the dot-com wave back in the aughts with Dell Computer stock. They would post a record quarter, beating the EPS estimates, and the stock would still go down because they didn’t hit the ephemeral “Whisper Number”.

I’ve given up trying to figure out the market, all my money is in funds now.

 

[Ogre]

Tesla will need impressive growth just to maintain the current price.

This is why owning Tesla scares concerns* me a bit. Huge growth is built into the stock price. Even modest misses can beat down the stock.

I think we might have a few more years of big numbers growth ahead of us. 2022 and 2023 are certainly looking to be big years. But at some point we get PE compression and the stock plateaus until those outsized expectations are drained out.


* TSLA isn't more than 20% of my portfolio so not too worried.

 

[TruckElectric]

Crazy like Amazon or Apple. Exceedingly hard to value reasonably.

AT&T, General Mills or Proctor&Gamble it is not, for sure.

Lots of assumptions one way or the other about future growth.

It usually is with a company like Tesla.

Where is the 4680 going?

Ask Elon on Twitter ?

I own Tesla because Musk has done amazing things and I expect him to continue to do amazing and stunning things. But it's hard to put a dollar amount on that.

You don't have to get it just right, As long as it keeps multiplying.

 

[TruckElectric]

That growth is already baked into the current stock valuation.

Maybe just a little, but not much.

Tesla will need impressive growth just to maintain the current price.

Wrong, wrong and wrong.

I remember riding the dot-com wave back in the aughts with Dell Computer stock. They would post a record quarter, beating the EPS estimates, and the stock would still go down because they didn’t hit the ephemeral “Whisper Number”.

Alan Greenspan had a name for the dot-com Era 'Irrational Exuberance'.

Is history repeating itself?

I’ve given up trying to figure out the market, all my money is in funds now.

Just remember this: Jerome Powell has the stock market's back. But I'm still looking for a correction pretty soon.

 

[CyberGus]

Maybe just a little, but not much…
Wrong, wrong and wrong.

TSLA’s PE is over 400. Most of that valuation is based on future growth.

The EV boom is starting to look a lot like the dot-com boom. Trevor Milton is a billionaire without ever having shipped a single product.

 

[TruckElectric]

TSLA’s PE is over 400.

Close
Tesla PE Ratio:
395.57 for Sept. 17, 2021


P/E ratio is so yesterday...... it's PEG ratio now.

TSLA Price/Earnings & PEG Ratios Price/Earnings Ratio

label	value
2020 Actual	1186.7
2021 Estimates	224.04
2022 Estimates	142.49
2023 Estimates	134.66

Forecast P/E Growth Rates

label	value
Growth 2021	429.91
Growth 2022	57.25
P/E Ratios 2021	224.04
P/E Ratios 2022	142.49

PEG Ratio

label	value
Forecast 12 Month Forward PEG Ratio	6.39

Investors are always looking for companies with good growth prospects selling at attractive prices. One popular statistic used to identify such stocks is the PEG ratio - which is simply the Price Earnings ratio divided by the growth rate. In this case we use the forecasted growth rate (based on the consensus of professional analysts) and forecasted earnings over the next 12 months. In theory, the lower the PEG ratio the better - implying that you are paying less for future earnings growth. The PEG ratio for this company is based on expected earnings for twelve months ending August 2022
BACK TO TSLA OVERVIEW
Data Provider: Data is provided by Zacks Investment Research
About the Price/ Earnings & PEG Ratios
Nasdaq provides Price/Earnings Ratio (or PE Ratio) and PEG ratio for stock evaluation. Financial analysts and individual investors use PE Ratio and PEG ratios to determine the financial performance of a business entity when making investment decisions.

Most of that valuation is based on future growth.

What do you think would happen if Tesla's 'Green Credits' were to stop? The stock price would plummet.

The EV boom is starting to look a lot like the dot-com boom.

It's just getting started. Wait 2 years and then make an assessment.

Trevor Milton is a billionaire without ever having shipped a single product.

TM is a con man on the scale of Bernard Madoff.

 

[TruckElectric]

But I'm still looking for a correction pretty soon.

The Black Swan?

China’s embattled developer Evergrande is on the brink of default. Here’s why it matters

KEY POINTS

• Snowed under its crushing debt of $300 billion, Evergrande is so huge that the fallout from any failure could hurt not just China’s economy. Contagion could spread to markets beyond China.
• Here’s how big Evergrande is, how bad its debt problems are, and what’s next.

Chinese property giant Evergrande is on the brink of collapse, and analysts warn the potential fallout could have far-reaching implications that spill outside China’s borders.
“Evergrande’s collapse would be the biggest test that China’s financial system has faced in years,” says Mark Williams, chief Asia economist at Capital Economics.

Here’s how bad its problems are, and what’s in store for investors.

How did we get here?
After expanding rapidly for years and snapping up assets as China’s economy boomed, Evergrande is now snowed under a crushing debt of $300 billion.

Vehicles drive near unfinished residential buildings from the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 16, 2021.
Carlos Garcia Rawlins | Reuters

The world’s most indebted property developer has been scrambling to pay its suppliers, and warned investors twice in as many weeks that it could default on its debts.

On Tuesday, Evergrande said its property sales will likely continue to drop significantly in September after declining for months, making its cash flow situation even more dire.

The Chinese developer is so huge that the fallout from a potential failure could hurt not only the Chinese economy, but spread to markets beyond.

Evergrande’s collapse would be the biggest test that China’s financial system has faced in years.
Mark Williams
CAPITAL ECONOMICS, CHIEF ASIA ECONOMIST

Banks have also responded to its deteriorating cash flow. Some in Hong Kong, including HSBC and Standard Chartered, have declined to extend new loans to buyers of two uncompleted Evergrande residential projects, said Reuters.

Ratings agencies have repeatedly downgraded the firm, citing its liquidity problems. Evergrande’s problems intensified last year when China introduced rules to rein in the borrowing costs of developers. Those measures place a cap on debt in relation to a firm’s cash flows, assets and capital levels.

Its share price plunged nearly 80% so far this year, and trading of its bonds was repeatedly halted by Chinese stock exchanges in the past weeks.

What does Evergrande do?
Evergrande is everywhere. Its main business is in real estate, and it’s China’s second-largest property developer by sales.

• Evergrande owns more than 1,300 real estate projects in over 280 cities in China.
• Its property services management arm is involved in nearly 2,800 projects across more than 310 cities in China.
• The company has seven units dabbling in a wide range of industries, including electric vehicles, health-care services, consumer products, video and television production units and even a theme park.
• The firm says it has 200,000 employees, but indirectly creates more than 3.8 million jobs every year, according to its website.
• Evergrande’s shares and bonds are included in indexes across Asia.

Who will be affected?
The pool of affected parties include banks, suppliers, home-buyers and investors.
Evergrande warned this week its escalating troubles could lead to broader default risks.
It said that if it can’t repay its debt, it may lead to a situation of “cross default” — where a default triggered in one situation may spread to other obligations, leading to broader contagion.

A banking failure triggered by the collapse of major property developers was the single most likely scenario that could lead to a hard landing in China.
Mark Williams
CAPITAL ECONOMICS, CHIEF ASIA ECONOMIST

1. Banks
The banking industry would be among the first to be hit if there are any contagion effects on the wider property sector in China, said Williams of Capital Economics.
“A banking failure triggered by the collapse of major property developers was the single most likely scenario that could lead to a hard landing in China. And the fact that financial markets aren’t currently signaling alarm doesn’t mean they won’t,” Williams wrote in a note last week.
2. Homebuyers and investors
Protests by angry homebuyers and investors broke out in recent days in some cities, and social unrest is among the concerns.
On Monday, around 100 investors turned up at Evergrande’s headquarters in Shenzhen, demanding repayment of loans on overdue financial products — forming chaotic scenes, according to Reuters.

In fact, sentiment is already spreading to Asia high yield bonds. Yields on Asian offshore bonds, dominated by property firms, have spiked to an average of 13%, according to TS Lombard.
That also means offshore investors are at the losing end, the research firm said in a note last week.
“The company’s guarantee to deliver all pre-sold projects is likely to lead to overseas stakeholders seeing little, if anything, from the ultimate sale of a developer’s assets in the event of a bailout,” said TS Lombard.
https://www.cnbc.com/2021/09/17/chi...t-crisis-bond-default-and-investor-risks.html


‘China’s Lehman Brothers moment’: Evergrande crisis rattles economy
President Xi Jinping faces serious test of his financial reforms as struggles of property giant send ripples through real-estate sector

Evergrande is estimated to have 1.4m pre-sold homes still yet to be completed. Photograph: Greg Baker/AFP/Getty Images


The crisis engulfing Evergrande, China’s second-biggest property company, is the greatest test yet of President Xi Jinping’s effort to reform the debt-ridden behemoths of the Chinese economy. It could also be the most significant test that China’s financial system has faced in many years.

As angry protesters occupied the headquarters of the troubled property developer in recent weeks, some analysts have described the Evergrande crisis as “China’s Lehman Brothers moment”. Only this time it’s a credit-fuelled housebuilder that suddenly can’t pay its $300bn debts, rather than a blue-chip investment bank that many assumed was too big to fail but was instead thrown to the wolves 13 years ago.

Although there may be some parallels, the more extreme prophecies of doom for China may be no more correct than the assumption that Beijing will simply step in and bail out Evergrande to make sure the fallout from the failure of a property giant does not spread to other areas of the Chinese economy.

“It seems that we may have already started the financial distress process. As the risk of insolvency increases, the behaviour of sales agents, homebuyers, suppliers and other stakeholders changes in ways that further undermine revenues and raise expenses,” said Michael Pettis, a professor of finance at Peking University. “Once that process begins, conditions can quickly spiral downwards unless someone like the government steps in to guarantee payments.”

As Evergrande’s turmoil continues to brew, the pressure on China’s real-estate sector is being felt far beyond a single developer. August data released on Wednesday suggested that national home sales by value had tumbled by 19.7% year-on-year, the largest drop since April 2020. Growth in home prices had slowed, too.

The question is how Beijing is to intervene – if it is going to do so at all. Some analysts think it will try to save part of Evergrande with a “politicised hierarchy” of creditors headed by the small investors and homebuyers who marched on Evergrande offices this week to demand their money back. Such public protest is rare in China and Beijing cannot risk it escalating into a narrative about the elites enriching themselves at the expense of ordinary people.

Protesters at the Evergrande headquarters building in Shenzhen, south-east China. Photograph: Noel Celis/AFP/Getty Images


Starting on Tuesday, when the firm founded by the former steel executive Xu Jiayin 24 years ago is widely expected to default on two key bank repayments, big banks and financial institutions face the prospect of a drastic haircut of more than 75% as the price of saving the little guys.

But the key question is: will that work? The company shocked the market this week by admitting that it cannot offload its assets quickly enough to stop the bleeding. Its share price is collapsing and trade in its bonds has been suspended. It could get messy, analysts say.

“The nightmare scenario is a fire sale of Evergrande assets that transforms a healthy market correction into a rout,” said Gabriel Wildau, a China political risk specialist and a senior vice-president at the advisory firm Teneo.

The potential timebomb has been ticking for some years. China’s housing market has become hugely bloated by years of cheap credit and is reckoned by conservative estimates to account for 16% of GDP, although some estimates put that figure at 25% – far more than the proportion in western economies.

But the low-hanging fruit of debt-fuelled growth has long gone. In 2007-08, about 6.5tn yuan ($1tn) of new credit was needed to raise GDP by about 5tn yuan a year, according to the IMF. In 2015-16, it took more than 20tn yuan in new credit for the same growth.

This means it is becoming much more expensive to repeat the trick, as more credit is pumped into the system for an ever-decreasing impact. In the end there has to be a reckoning and the crisis at Evergrande suggests that the cycle has finally caught up with the poster child of China’s property-market miracle.

“It is an intractable problem. As long as Beijing for political reasons selects GDP growth targets that exceed the underlying growth rate of the economy, it needs surging debt to achieve those targets, and this surging debt requires implicit guarantees, or moral hazard,” said Pettis. “They can’t really get one without the other.”

This is perhaps the biggest headache for Beijing when it tries to make a reformed economic model work. Shortly after he came to power in 2013, Xi said that China needed to “shift the focus to improving the quality and returns of economic growth … to pursuing genuine rather than inflated GDP growth.”

Since Xi’s speech, a slew of regulations were introduced for various sectors of the Chinese economy, for example the so-called “three red lines” for selected developers in 2020 which severely limited their capacity to borrow.

Experts agree that this was where the rot finally set in for Evergrande because, as property prices began to cool in the wake of the regulatory crackdown, the company could no longer borrow so much to cover losses. Some say that the way Xi handles the implosion at Evergrande will be the “most serious test” of his determination to see through his reforms.

Xi Jinping’s goal to reform China’s economy comes with the risk of causing a debt crisis. Photograph: Xinhua/REX/Shutterstock

James Shi and Simon Lee of the Hong Kong data analytics firm Reorg said Beijing’s priority would be to keep Evergrande in business – even if its in a zombified form – in order to finish the estimated 1.4m homes the company has pre-sold.

“This is the top priority for them and the government,” they said. “Nobody wants thousands of angry people demanding their money back.

“This means that other immediate creditors such as suppliers must expect that they won’t get paid straight away. There is also a lot of anecdotal evidence that Evergrande has offered flats as payment in kind to suppliers and contractors.”

They said bigger institutional creditors were a low priority and would most likely have to accept a government-orchestrated restructure of the company. Foreign holders of Evergrande’s dollar-denominated bonds – which total around $20bn – wouldn’t have much say in what happened and would therefore face a wipeout, analysts say. They would probably pursue their money in international courts.

However, the big question hanging over this is how long such a process could keep a wide range of creditors at bay while the company continued to operate and meet its building obligations.

Damien Klassen, who manages millions of dollars at Nucleus Wealth in Melbourne, Australia, said Xi should be applauded for trying to make serious change to an unbalanced economy. The problem is that it could spiral out of control.

“Xi may be thinking that: ‘If I have to break a few eggs, I break a few eggs.’ I’m sure he would prefer if 25% of the economy was not devoted to the housing industry. Xi wants to change society, make property more affordable. That’s not a bad thing. But can he pull it off? He could end up with a debt crisis.

“The problem is that the banks have lent to every developer in the same way so you could see contagion across the whole sector. There will be uncertainty about who takes on the bad loans and then it will be the whole sector that won’t get any credit, not just Evergrande. No one knows what’s going on, so you don’t know which property companies will fall over next.”

Most observers agree that the state will be able to orchestrate a softer landing than western governments managed 13 years ago. Wildau points out that China’s banking system survived a stress test this month by regulators that factored in defaults on both home mortgages and developer loans in excess of the likely impact of an Evergrande collapse. Evergrande’s liabilities of $305bn are around half of Lehman’s and the west did not have the kind of regulatory control at Beijing’s disposal to defuse the situation.


However, whatever happens, and even if Evergrande lives to fight another day, the Reorg analysts say that the Chinese property market is already in a crisis as companies race to offload debt.

“The impact is already being felt in industry – it is deleveraging very rapidly. Companies are finding it much harder to raise money which is shown by very high yields for their bonds,” they said.

Capital Economics agrees that even if a soft landing is engineered, the property sector that has driven China’s growth for 25 years is entering a period of decline that could have a profound effect on the world’s second-biggest economy.

Even reversing the red lines would not make much difference, they argue, because sales of land and homes were already falling, partly because China’s slowing population growth is acting as a natural break on the housing market. There are fewer young adults than there were 10 years ago, something shown by a 31% drop in marriages from 2013 to 2019.

“Relaxation of regulatory controls on the sector wouldn’t change this fundamental constraint,” said Mark Williams, Capital’s chief Asia economist. “Construction, a key engine of China’s growth and commodity demand, will slow substantially over the next few years, whether or not the economy escapes the current crunch unscathed.”


https://www.theguardian.com/world/2...hers-moment-evergrande-crisis-rattles-economy



Markets
China’s Nightmare Evergrande Scenario Is an Uncontrolled Crash
By
Hong Shen
,
Enda Curran
, and
Sofia Horta e Costa
September 16, 2021, 11:00 AM CDT
https://www.bloomberg.com/news/vide...evergrande-won-t-make-interest-payments-video

Protests intensify at China Evergrande Group offices across the country as the developer falls further behind on promises to more than 70,000 investors. Construction of unfinished properties with enough floor space to cover three-fourths of Manhattan grinds to a halt, leaving more than a million homebuyers in limbo.

Fire sales pummel an already shaky real estate market, squeezing other developers and rippling through a supply chain that accounts for more than a quarter of Chinese economic output. Covid-weary consumers retrench even further, and the risk of popular discontent rises during a politically sensitive transition period for President Xi Jinping. Credit-market stress spreads from lower-rated property companies to stronger peers and banks. Global investors who bought $527 billion of Chinese stocks and bonds in the 15 months through June begin to sell.

https://www.bloomberg.com/news/videos/2021-09-17/concerns-mount-over-evergrande-s-fate-video
WATCH: Concerns are mounting over the fate of Evergrande as Beijing faces pressure to intervene.
(Source: Bloomberg)

While it’s impossible to know for sure what would happen if Beijing allows Evergrande’s downward spiral to continue unabated, China watchers are gaming out worst-case scenarios as they contemplate how much pain the Communist Party is willing to tolerate. Pressure to intervene is growing as signs of financial contagion increase.

“As a systemically important developer, an Evergrande bankruptcy would cause problems for the entire property sector,” said Shen Meng, director of Chanson & Co., a Beijing-based boutique investment bank. “Debt recovery efforts by creditors would lead to fire sales of assets and hit housing prices. Profit margins across the supply chain would be squeezed. It would also lead to panic selling in capital markets.”

For now, Shen and nearly all of the other bankers, analysts and investors interviewed for this story say Beijing is in no mood for a Lehman moment. Rather than allow a chaotic collapse into bankruptcy, they predict regulators will engineer a restructuring of Evergrande’s $300 billion pile of liabilities that keeps systemic risk to a minimum. Markets seem to agree: the Shanghai Composite Index is less than 3% from a six-year high and the yuan is trading near the strongest level in three months against the dollar.

Yet a benign outcome is far from assured. Beijing’s bungled stock-market rescue in 2015 showed how difficult it can be for policy makers to control financial outcomes, even in a system where the government runs most of the banks and can exert outsized pressure on creditors, suppliers and other counterparties.

Contagion risk was on full display Thursday. Chinese junk-bond yields jumped to an 18-month high and shares of real estate companies plunged after Evergrande had its credit rating downgraded and requested a trading halt in its onshore bonds. Some banks in China appear to be hoardingyuan at the highest cost in almost four years, a sign they may be preparing for what a Mizuho Financial Group Inc. strategist called a “liquidity squeeze in crisis mode.”

Where Xi will ultimately draw the line remains a mystery. While China’s top financial regulator has urged billionaire Evergrande founder Hui Ka Yan to solve his company’s debt problems, authorities have yet to spell out whether the government would allow a major debt restructuring or bankruptcy.

Even senior officials at state-owned banks say privately that they’re still waiting for guidance on a long-term solution from top leaders in Beijing. Evergrande’s main banks were told by China’s housing ministry this week that the developer won’t be able to make interest payments due Sept. 20, according to people familiar with the matter.

China’s government isn’t averse to taking over companies from the private sector if needed. It seized Baoshang Bank Co. in 2019 and assumed control of HNA Group Co., the once-sprawling conglomerate, in early 2020 after the coronavirus pandemic decimated the company’s main travel business. Court-led restructurings have also become more common in recent years, with more than 700 being completed in 2020.

The Evergrande endgame may depend largely on how Xi decides to balance his goals of maintaining social and financial stability against his multi-year campaign to reduce moral hazard. The timing is particularly tricky as China juggles an economic slowdown, a sweeping crackdown on the private sector and rising tensions with Washington -- all in the runup to a once-in-five-year leadership reshuffle in 2022 at which Xi is set to extend his indefinite rule.

“The government has to be very, very careful in balancing support for Evergrande,” said Yu Yong, a former China Banking and Insurance Regulatory Commission regulator and now chief risk officer at China Agriculture Reinsurance Fund.

“Property is the biggest bubble that everyone has been talking about in China,” Yu told Everbright Sun Hung Kai analyst Jonas Short in a recent podcast. “So if anything happens, this could clearly cause systematic risk to the whole China economy.”


Here are some of the factors that may sway Chinese leaders:

Social Unrest
Maintaining social order has always been paramount for the Communist Party, which has little tolerance for protests of any kind. In Guangzhou, homebuyers surrounded a local housing bureau last week to demand Evergrande restart stalled construction. Disgruntled retail investors have gathered at the company’s Shenzhen headquarters for at least three straight days this week, and unconfirmed videos of protests against the developer in other parts of China have been shared widely online.

Evergrande had 1.3 trillion yuan ($202 billion) in presale liabilities at the end of June, equivalent to about 1.4 million individual properties that it has committed to complete, according to a Capital Economics report last week.

“If Evergrande had to dump its inventory onto the market” it would “drag down property prices substantially,” said Hao Hong, chief strategist at Bocom International.

Without a social safety net and with limited places to put their money, Chinese savers have for years been encouraged to buy homes whose prices were only ever supposed to go up. Today, real estate accounts for 40% of household assets and buying a house (or two) is a cultural touchstone. While housing affordability has become a hot topic in the West, many Chinese are more likely to protest falling home prices than spiking ones.

“Given that the bulk of people’s wealth is already in property, even a 10% correction would be a serious knock to many people,” said Fraser Howie, an independent analyst and co-author of books on Chinese finance who has been following the country’s corporate sector for decades. “It would certainly knock their hopes and dreams and expectations about what property is.”

Another potential flashpoint is whether Evergrande can repay high-yield wealth management products that it sold to thousands of retail investors, including many of its own employees. About 40 billion yuan of the WMPs are due to be repaid, according to Caixin, a Chinese financial news service. Evergrande is trying to free up cash by selling assets, including stakes in its electric-car and property-management businesses, but has so far made little progress.

Capital Markets
Evergrande is the largest high-yield dollar bond issuer in China, accounting for 16% of outstanding notes, according to Bank of America Corp. analysts. Should the company collapse, that alone would push the default rate on the country’s junk dollar bond market to 14% from 3%, they wrote in a note this month.


While Beijing has become more comfortable with allowing weaker businesses to fail, an uncontrolled spike in offshore funding costs would risk derailing a key source of financing. It could also undermine global confidence in the country’s issuers at a time when Beijing is pushing for larger foreign investor ownership. Yields on China’s junk dollar bonds are nearing 14%, up from about 7.4% in February, according to a Bloomberg index.

The stakes are higher on the mainland, where the credit market is about 15 times the size at $12 trillion. While Evergrande is less of a whale onshore, a collapse could force banks to cut their holdings of corporate notes and even freeze money markets -- the very plumbing of China’s financial system. In such a credit crunch, the government or central bank would likely be forced to act. Banks involved in property lending may come under pressure, leading to an increase in soured loans. Smaller banks exposed to Evergrande or other weaker developers may face “significant” increases in non-performing loans in the event of a default, according to Fitch Ratings.

Economic Impact
Concern over Evergrande comes at a time when China’s economy is already slowing. Aggressive controls to curb outbreaks of Covid-19 are hurting retail spending and travel, while measures to cool property prices are taking a toll.

Data this week showed home sales by value slumped 20% in August from a year earlier, the biggest drop since the onset of the coronavirus early last year. Responding to a question on Evergrande’s potential impact on the economy, National Bureau of Statistics spokesman Fu Linghui said some large property enterprises are running into difficulties and the fallout “remains to be seen.”

China’s current priorities of promoting “common prosperity” and deterring excessive risk-taking mean there’s unlikely to be any easing of property curbs this year, according to Macquarie Group Ltd. The sector will be a “main growth headwind” for next year, although policy makers may loosen restrictions to defend growth goals, Macquarie analysts wrote in a Wednesday note.

A correction in China’s property market would not only slow the domestic economy but have global consequences too.

“A significant slowdown in property construction over the next few years appears probable already, and would become even more likely in the event of an Evergrande failure or bankruptcy,” said Logan Wright, a Hong Kong-based director at research firm Rhodium Group LLC. “A long-term slowdown in property construction, an industry that represents around a fifth or a quarter of China’s economy by most estimates, would cause a significant decline in GDP growth, commodity demand, and would likely have disinflationary effects globally.”


https://www.bloomberg.com/news/arti...-evergrande-scenario-is-an-uncontrolled-crash

 

[TruckElectric]

The Black Swan?

China’s embattled developer Evergrande is on the brink of default. Here’s why it matters

KEY POINTS

• Snowed under its crushing debt of $300 billion, Evergrande is so huge that the fallout from any failure could hurt not just China’s economy. Contagion could spread to markets beyond China.
• Here’s how big Evergrande is, how bad its debt problems are, and what’s next.

Chinese property giant Evergrande is on the brink of collapse, and analysts warn the potential fallout could have far-reaching implications that spill outside China’s borders.
“Evergrande’s collapse would be the biggest test that China’s financial system has faced in years,” says Mark Williams, chief Asia economist at Capital Economics.

Here’s how bad its problems are, and what’s in store for investors.

How did we get here?
After expanding rapidly for years and snapping up assets as China’s economy boomed, Evergrande is now snowed under a crushing debt of $300 billion.

Vehicles drive near unfinished residential buildings from the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 16, 2021.
Carlos Garcia Rawlins | Reuters

The world’s most indebted property developer has been scrambling to pay its suppliers, and warned investors twice in as many weeks that it could default on its debts.

On Tuesday, Evergrande said its property sales will likely continue to drop significantly in September after declining for months, making its cash flow situation even more dire.

The Chinese developer is so huge that the fallout from a potential failure could hurt not only the Chinese economy, but spread to markets beyond.

Banks have also responded to its deteriorating cash flow. Some in Hong Kong, including HSBC and Standard Chartered, have declined to extend new loans to buyers of two uncompleted Evergrande residential projects, said Reuters.

Ratings agencies have repeatedly downgraded the firm, citing its liquidity problems. Evergrande’s problems intensified last year when China introduced rules to rein in the borrowing costs of developers. Those measures place a cap on debt in relation to a firm’s cash flows, assets and capital levels.

Its share price plunged nearly 80% so far this year, and trading of its bonds was repeatedly halted by Chinese stock exchanges in the past weeks.

What does Evergrande do?
Evergrande is everywhere. Its main business is in real estate, and it’s China’s second-largest property developer by sales.

• Evergrande owns more than 1,300 real estate projects in over 280 cities in China.
• Its property services management arm is involved in nearly 2,800 projects across more than 310 cities in China.
• The company has seven units dabbling in a wide range of industries, including electric vehicles, health-care services, consumer products, video and television production units and even a theme park.
• The firm says it has 200,000 employees, but indirectly creates more than 3.8 million jobs every year, according to its website.
• Evergrande’s shares and bonds are included in indexes across Asia.

Who will be affected?
The pool of affected parties include banks, suppliers, home-buyers and investors.
Evergrande warned this week its escalating troubles could lead to broader default risks.
It said that if it can’t repay its debt, it may lead to a situation of “cross default” — where a default triggered in one situation may spread to other obligations, leading to broader contagion.

1. Banks
The banking industry would be among the first to be hit if there are any contagion effects on the wider property sector in China, said Williams of Capital Economics.
“A banking failure triggered by the collapse of major property developers was the single most likely scenario that could lead to a hard landing in China. And the fact that financial markets aren’t currently signaling alarm doesn’t mean they won’t,” Williams wrote in a note last week.
2. Homebuyers and investors
Protests by angry homebuyers and investors broke out in recent days in some cities, and social unrest is among the concerns.
On Monday, around 100 investors turned up at Evergrande’s headquarters in Shenzhen, demanding repayment of loans on overdue financial products — forming chaotic scenes, according to Reuters.

In fact, sentiment is already spreading to Asia high yield bonds. Yields on Asian offshore bonds, dominated by property firms, have spiked to an average of 13%, according to TS Lombard.
That also means offshore investors are at the losing end, the research firm said in a note last week.
“The company’s guarantee to deliver all pre-sold projects is likely to lead to overseas stakeholders seeing little, if anything, from the ultimate sale of a developer’s assets in the event of a bailout,” said TS Lombard.
https://www.cnbc.com/2021/09/17/chi...t-crisis-bond-default-and-investor-risks.html


‘China’s Lehman Brothers moment’: Evergrande crisis rattles economy
President Xi Jinping faces serious test of his financial reforms as struggles of property giant send ripples through real-estate sector

Evergrande is estimated to have 1.4m pre-sold homes still yet to be completed. Photograph: Greg Baker/AFP/Getty Images


The crisis engulfing Evergrande, China’s second-biggest property company, is the greatest test yet of President Xi Jinping’s effort to reform the debt-ridden behemoths of the Chinese economy. It could also be the most significant test that China’s financial system has faced in many years.

As angry protesters occupied the headquarters of the troubled property developer in recent weeks, some analysts have described the Evergrande crisis as “China’s Lehman Brothers moment”. Only this time it’s a credit-fuelled housebuilder that suddenly can’t pay its $300bn debts, rather than a blue-chip investment bank that many assumed was too big to fail but was instead thrown to the wolves 13 years ago.

Although there may be some parallels, the more extreme prophecies of doom for China may be no more correct than the assumption that Beijing will simply step in and bail out Evergrande to make sure the fallout from the failure of a property giant does not spread to other areas of the Chinese economy.

“It seems that we may have already started the financial distress process. As the risk of insolvency increases, the behaviour of sales agents, homebuyers, suppliers and other stakeholders changes in ways that further undermine revenues and raise expenses,” said Michael Pettis, a professor of finance at Peking University. “Once that process begins, conditions can quickly spiral downwards unless someone like the government steps in to guarantee payments.”

As Evergrande’s turmoil continues to brew, the pressure on China’s real-estate sector is being felt far beyond a single developer. August data released on Wednesday suggested that national home sales by value had tumbled by 19.7% year-on-year, the largest drop since April 2020. Growth in home prices had slowed, too.

The question is how Beijing is to intervene – if it is going to do so at all. Some analysts think it will try to save part of Evergrande with a “politicised hierarchy” of creditors headed by the small investors and homebuyers who marched on Evergrande offices this week to demand their money back. Such public protest is rare in China and Beijing cannot risk it escalating into a narrative about the elites enriching themselves at the expense of ordinary people.

Protesters at the Evergrande headquarters building in Shenzhen, south-east China. Photograph: Noel Celis/AFP/Getty Images


Starting on Tuesday, when the firm founded by the former steel executive Xu Jiayin 24 years ago is widely expected to default on two key bank repayments, big banks and financial institutions face the prospect of a drastic haircut of more than 75% as the price of saving the little guys.

But the key question is: will that work? The company shocked the market this week by admitting that it cannot offload its assets quickly enough to stop the bleeding. Its share price is collapsing and trade in its bonds has been suspended. It could get messy, analysts say.

“The nightmare scenario is a fire sale of Evergrande assets that transforms a healthy market correction into a rout,” said Gabriel Wildau, a China political risk specialist and a senior vice-president at the advisory firm Teneo.

The potential timebomb has been ticking for some years. China’s housing market has become hugely bloated by years of cheap credit and is reckoned by conservative estimates to account for 16% of GDP, although some estimates put that figure at 25% – far more than the proportion in western economies.

But the low-hanging fruit of debt-fuelled growth has long gone. In 2007-08, about 6.5tn yuan ($1tn) of new credit was needed to raise GDP by about 5tn yuan a year, according to the IMF. In 2015-16, it took more than 20tn yuan in new credit for the same growth.

This means it is becoming much more expensive to repeat the trick, as more credit is pumped into the system for an ever-decreasing impact. In the end there has to be a reckoning and the crisis at Evergrande suggests that the cycle has finally caught up with the poster child of China’s property-market miracle.

“It is an intractable problem. As long as Beijing for political reasons selects GDP growth targets that exceed the underlying growth rate of the economy, it needs surging debt to achieve those targets, and this surging debt requires implicit guarantees, or moral hazard,” said Pettis. “They can’t really get one without the other.”

This is perhaps the biggest headache for Beijing when it tries to make a reformed economic model work. Shortly after he came to power in 2013, Xi said that China needed to “shift the focus to improving the quality and returns of economic growth … to pursuing genuine rather than inflated GDP growth.”

Since Xi’s speech, a slew of regulations were introduced for various sectors of the Chinese economy, for example the so-called “three red lines” for selected developers in 2020 which severely limited their capacity to borrow.

Experts agree that this was where the rot finally set in for Evergrande because, as property prices began to cool in the wake of the regulatory crackdown, the company could no longer borrow so much to cover losses. Some say that the way Xi handles the implosion at Evergrande will be the “most serious test” of his determination to see through his reforms.

Xi Jinping’s goal to reform China’s economy comes with the risk of causing a debt crisis. Photograph: Xinhua/REX/Shutterstock

James Shi and Simon Lee of the Hong Kong data analytics firm Reorg said Beijing’s priority would be to keep Evergrande in business – even if its in a zombified form – in order to finish the estimated 1.4m homes the company has pre-sold.

“This is the top priority for them and the government,” they said. “Nobody wants thousands of angry people demanding their money back.

“This means that other immediate creditors such as suppliers must expect that they won’t get paid straight away. There is also a lot of anecdotal evidence that Evergrande has offered flats as payment in kind to suppliers and contractors.”

They said bigger institutional creditors were a low priority and would most likely have to accept a government-orchestrated restructure of the company. Foreign holders of Evergrande’s dollar-denominated bonds – which total around $20bn – wouldn’t have much say in what happened and would therefore face a wipeout, analysts say. They would probably pursue their money in international courts.

However, the big question hanging over this is how long such a process could keep a wide range of creditors at bay while the company continued to operate and meet its building obligations.

Damien Klassen, who manages millions of dollars at Nucleus Wealth in Melbourne, Australia, said Xi should be applauded for trying to make serious change to an unbalanced economy. The problem is that it could spiral out of control.

“Xi may be thinking that: ‘If I have to break a few eggs, I break a few eggs.’ I’m sure he would prefer if 25% of the economy was not devoted to the housing industry. Xi wants to change society, make property more affordable. That’s not a bad thing. But can he pull it off? He could end up with a debt crisis.

“The problem is that the banks have lent to every developer in the same way so you could see contagion across the whole sector. There will be uncertainty about who takes on the bad loans and then it will be the whole sector that won’t get any credit, not just Evergrande. No one knows what’s going on, so you don’t know which property companies will fall over next.”

Most observers agree that the state will be able to orchestrate a softer landing than western governments managed 13 years ago. Wildau points out that China’s banking system survived a stress test this month by regulators that factored in defaults on both home mortgages and developer loans in excess of the likely impact of an Evergrande collapse. Evergrande’s liabilities of $305bn are around half of Lehman’s and the west did not have the kind of regulatory control at Beijing’s disposal to defuse the situation.


However, whatever happens, and even if Evergrande lives to fight another day, the Reorg analysts say that the Chinese property market is already in a crisis as companies race to offload debt.

“The impact is already being felt in industry – it is deleveraging very rapidly. Companies are finding it much harder to raise money which is shown by very high yields for their bonds,” they said.

Capital Economics agrees that even if a soft landing is engineered, the property sector that has driven China’s growth for 25 years is entering a period of decline that could have a profound effect on the world’s second-biggest economy.

Even reversing the red lines would not make much difference, they argue, because sales of land and homes were already falling, partly because China’s slowing population growth is acting as a natural break on the housing market. There are fewer young adults than there were 10 years ago, something shown by a 31% drop in marriages from 2013 to 2019.

“Relaxation of regulatory controls on the sector wouldn’t change this fundamental constraint,” said Mark Williams, Capital’s chief Asia economist. “Construction, a key engine of China’s growth and commodity demand, will slow substantially over the next few years, whether or not the economy escapes the current crunch unscathed.”


https://www.theguardian.com/world/2...hers-moment-evergrande-crisis-rattles-economy



Markets
China’s Nightmare Evergrande Scenario Is an Uncontrolled Crash
By
Hong Shen
,
Enda Curran
, and
Sofia Horta e Costa
September 16, 2021, 11:00 AM CDT
https://www.bloomberg.com/news/vide...evergrande-won-t-make-interest-payments-video

Protests intensify at China Evergrande Group offices across the country as the developer falls further behind on promises to more than 70,000 investors. Construction of unfinished properties with enough floor space to cover three-fourths of Manhattan grinds to a halt, leaving more than a million homebuyers in limbo.

Fire sales pummel an already shaky real estate market, squeezing other developers and rippling through a supply chain that accounts for more than a quarter of Chinese economic output. Covid-weary consumers retrench even further, and the risk of popular discontent rises during a politically sensitive transition period for President Xi Jinping. Credit-market stress spreads from lower-rated property companies to stronger peers and banks. Global investors who bought $527 billion of Chinese stocks and bonds in the 15 months through June begin to sell.

https://www.bloomberg.com/news/videos/2021-09-17/concerns-mount-over-evergrande-s-fate-video
WATCH: Concerns are mounting over the fate of Evergrande as Beijing faces pressure to intervene.
(Source: Bloomberg)

While it’s impossible to know for sure what would happen if Beijing allows Evergrande’s downward spiral to continue unabated, China watchers are gaming out worst-case scenarios as they contemplate how much pain the Communist Party is willing to tolerate. Pressure to intervene is growing as signs of financial contagion increase.

“As a systemically important developer, an Evergrande bankruptcy would cause problems for the entire property sector,” said Shen Meng, director of Chanson & Co., a Beijing-based boutique investment bank. “Debt recovery efforts by creditors would lead to fire sales of assets and hit housing prices. Profit margins across the supply chain would be squeezed. It would also lead to panic selling in capital markets.”

For now, Shen and nearly all of the other bankers, analysts and investors interviewed for this story say Beijing is in no mood for a Lehman moment. Rather than allow a chaotic collapse into bankruptcy, they predict regulators will engineer a restructuring of Evergrande’s $300 billion pile of liabilities that keeps systemic risk to a minimum. Markets seem to agree: the Shanghai Composite Index is less than 3% from a six-year high and the yuan is trading near the strongest level in three months against the dollar.

Yet a benign outcome is far from assured. Beijing’s bungled stock-market rescue in 2015 showed how difficult it can be for policy makers to control financial outcomes, even in a system where the government runs most of the banks and can exert outsized pressure on creditors, suppliers and other counterparties.

Contagion risk was on full display Thursday. Chinese junk-bond yields jumped to an 18-month high and shares of real estate companies plunged after Evergrande had its credit rating downgraded and requested a trading halt in its onshore bonds. Some banks in China appear to be hoardingyuan at the highest cost in almost four years, a sign they may be preparing for what a Mizuho Financial Group Inc. strategist called a “liquidity squeeze in crisis mode.”

Where Xi will ultimately draw the line remains a mystery. While China’s top financial regulator has urged billionaire Evergrande founder Hui Ka Yan to solve his company’s debt problems, authorities have yet to spell out whether the government would allow a major debt restructuring or bankruptcy.

Even senior officials at state-owned banks say privately that they’re still waiting for guidance on a long-term solution from top leaders in Beijing. Evergrande’s main banks were told by China’s housing ministry this week that the developer won’t be able to make interest payments due Sept. 20, according to people familiar with the matter.

China’s government isn’t averse to taking over companies from the private sector if needed. It seized Baoshang Bank Co. in 2019 and assumed control of HNA Group Co., the once-sprawling conglomerate, in early 2020 after the coronavirus pandemic decimated the company’s main travel business. Court-led restructurings have also become more common in recent years, with more than 700 being completed in 2020.

The Evergrande endgame may depend largely on how Xi decides to balance his goals of maintaining social and financial stability against his multi-year campaign to reduce moral hazard. The timing is particularly tricky as China juggles an economic slowdown, a sweeping crackdown on the private sector and rising tensions with Washington -- all in the runup to a once-in-five-year leadership reshuffle in 2022 at which Xi is set to extend his indefinite rule.

“The government has to be very, very careful in balancing support for Evergrande,” said Yu Yong, a former China Banking and Insurance Regulatory Commission regulator and now chief risk officer at China Agriculture Reinsurance Fund.

“Property is the biggest bubble that everyone has been talking about in China,” Yu told Everbright Sun Hung Kai analyst Jonas Short in a recent podcast. “So if anything happens, this could clearly cause systematic risk to the whole China economy.”


Here are some of the factors that may sway Chinese leaders:

Social Unrest
Maintaining social order has always been paramount for the Communist Party, which has little tolerance for protests of any kind. In Guangzhou, homebuyers surrounded a local housing bureau last week to demand Evergrande restart stalled construction. Disgruntled retail investors have gathered at the company’s Shenzhen headquarters for at least three straight days this week, and unconfirmed videos of protests against the developer in other parts of China have been shared widely online.

Evergrande had 1.3 trillion yuan ($202 billion) in presale liabilities at the end of June, equivalent to about 1.4 million individual properties that it has committed to complete, according to a Capital Economics report last week.

“If Evergrande had to dump its inventory onto the market” it would “drag down property prices substantially,” said Hao Hong, chief strategist at Bocom International.

Without a social safety net and with limited places to put their money, Chinese savers have for years been encouraged to buy homes whose prices were only ever supposed to go up. Today, real estate accounts for 40% of household assets and buying a house (or two) is a cultural touchstone. While housing affordability has become a hot topic in the West, many Chinese are more likely to protest falling home prices than spiking ones.

“Given that the bulk of people’s wealth is already in property, even a 10% correction would be a serious knock to many people,” said Fraser Howie, an independent analyst and co-author of books on Chinese finance who has been following the country’s corporate sector for decades. “It would certainly knock their hopes and dreams and expectations about what property is.”

Another potential flashpoint is whether Evergrande can repay high-yield wealth management products that it sold to thousands of retail investors, including many of its own employees. About 40 billion yuan of the WMPs are due to be repaid, according to Caixin, a Chinese financial news service. Evergrande is trying to free up cash by selling assets, including stakes in its electric-car and property-management businesses, but has so far made little progress.

Capital Markets
Evergrande is the largest high-yield dollar bond issuer in China, accounting for 16% of outstanding notes, according to Bank of America Corp. analysts. Should the company collapse, that alone would push the default rate on the country’s junk dollar bond market to 14% from 3%, they wrote in a note this month.


While Beijing has become more comfortable with allowing weaker businesses to fail, an uncontrolled spike in offshore funding costs would risk derailing a key source of financing. It could also undermine global confidence in the country’s issuers at a time when Beijing is pushing for larger foreign investor ownership. Yields on China’s junk dollar bonds are nearing 14%, up from about 7.4% in February, according to a Bloomberg index.

The stakes are higher on the mainland, where the credit market is about 15 times the size at $12 trillion. While Evergrande is less of a whale onshore, a collapse could force banks to cut their holdings of corporate notes and even freeze money markets -- the very plumbing of China’s financial system. In such a credit crunch, the government or central bank would likely be forced to act. Banks involved in property lending may come under pressure, leading to an increase in soured loans. Smaller banks exposed to Evergrande or other weaker developers may face “significant” increases in non-performing loans in the event of a default, according to Fitch Ratings.

Economic Impact
Concern over Evergrande comes at a time when China’s economy is already slowing. Aggressive controls to curb outbreaks of Covid-19 are hurting retail spending and travel, while measures to cool property prices are taking a toll.

Data this week showed home sales by value slumped 20% in August from a year earlier, the biggest drop since the onset of the coronavirus early last year. Responding to a question on Evergrande’s potential impact on the economy, National Bureau of Statistics spokesman Fu Linghui said some large property enterprises are running into difficulties and the fallout “remains to be seen.”

China’s current priorities of promoting “common prosperity” and deterring excessive risk-taking mean there’s unlikely to be any easing of property curbs this year, according to Macquarie Group Ltd. The sector will be a “main growth headwind” for next year, although policy makers may loosen restrictions to defend growth goals, Macquarie analysts wrote in a Wednesday note.

A correction in China’s property market would not only slow the domestic economy but have global consequences too.

“A significant slowdown in property construction over the next few years appears probable already, and would become even more likely in the event of an Evergrande failure or bankruptcy,” said Logan Wright, a Hong Kong-based director at research firm Rhodium Group LLC. “A long-term slowdown in property construction, an industry that represents around a fifth or a quarter of China’s economy by most estimates, would cause a significant decline in GDP growth, commodity demand, and would likely have disinflationary effects globally.”


https://www.bloomberg.com/news/arti...-evergrande-scenario-is-an-uncontrolled-crash

Big story on CNBC Squawk Box Asia now. Story has come up 5 times in the last hour and a half.

 

[TruckElectric]

Could get crazy today in the markets. Possible temporary halts?

 

[TruckElectric]

 

[Ogre]

Much more interesting than pages of seemingly unrelated junk would be a single paragraph or two post about how this is relevant to Tesla.

If you did post anything about Tesla, it's streamed past in all these other posts.