BlackRock and HSBC funds bolster Evergrande’s holdings as crisis looms
Updates from the Evergrande real estate group
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Funds managed by BlackRock and HSBC added to their holdings of Evergrande bonds just months before a liquidity crunch at the Chinese property developer pushed it to the brink of default.
BlackRock bought five different Evergrande dollar bonds in August through one of its high yield funds, which then held holdings in the developer worth $ 18 million, according to Morningstar data. The size of the holding had already increased significantly this year with the increase in the fund’s assets under management.
The world’s largest asset manager had total exposure of nearly $ 400 million in its funds, according to data compiled by Bloomberg based on the June, July and September filing dates.
A high-yield fund managed by HSBC in July was also a net buyer of Evergrande’s debt and has increased its bond holdings by 38% since February as the fund’s size grows, according to Morningstar data, although the value of its total exposure is $ 31 million. declined during this period due to lower prices.
The data highlights the willingness of some of Evergrande’s biggest offshore bond investors to continue increasing their holdings even after prices started to decline in the early stages of a liquidity crunch that is now spilling over into international markets.
Many investors are likely to have at least some exposure to Evergrande, as its bonds are an important component of the indices that track Asian corporate dollar-denominated debt. The group’s debt traded in offshore markets represents only a small proportion of its $ 300 billion in obligations to creditors and corporations, which means that the exposure of these asset managers remains more largely limited.
BlackRock declined to comment on its investment in Evergrande debt. HSBC’s asset management unit said: “As with many industries we invest in, we are closely monitoring developments in the real estate industry.”
The bonds of the world’s most indebted real estate developer have been trading for weeks at very troubled levels as it seeks to avoid a default on interest it owes Thursday on its offshore bonds. A dollar-denominated bond maturing next year is trading at less than 30 cents to the dollar, compared to near face value at the end of May.
S&P Global Ratings expects the company to default this week and estimates it has nearly $ 20 billion in dollar-denominated bonds outstanding from two offshore subsidiaries.
Ashmore, the emerging market investment specialist, was the most exposed with more than $ 400 million in bonds at the end of June, according to data compiled by Bloomberg, while UBS had nearly $ 300 million in exposure to Evergrande bonds at the end of April, May, June and July. UBS and Ashmore declined to comment.
In a note to clients last week, UBS said: “We continue to hold Evergrande in fixed-maturity funds, as exiting the position at this point removes any options around a successful recovery in construction activity. , outside financial aid or a policy adjustment in the coming months., and Evergrande bonds are now trading at or below typical historical salvage values ”.
Evergrande is the best-known international borrower among Chinese real estate developers, a highly leveraged sector that has relied heavily on Asian dollar bond markets over the past decade, but is now under pressure from Beijing to reduce his debts.
Earlier this summer, investors stepped up their bets against Evergrande bonds as prices began to tumble on waves of bad news, including frozen deposits and project shutdowns by local authorities, followed by investors from angry detail who traveled to its Shenzhen headquarters last week.
The company has long attracted the attention of the market for its leverage, which is the largest of any real estate developer in the world.
“I forbade anyone [that works for me] touch Evergrande’s equity or debt for 20 years, ”said the managing director of a private equity fund in Hong Kong. “It was always obvious that it was a very high risk and that one day everything would suddenly end in tears.”