Business Magazine

Failing Friday – China Defaults Keep Adding Up

Posted on the 22 May 2015 by Phil's Stock World @philstockworld

FXI WEEKLYI told you so.

I told you so yesterday and, much more profitably, I told you so on the morning of May 11th, when FXI opened at $50.75 on news of more Chinese stimulus and we called for a short using the FXI June $50 puts, which were $1.20 at the time and are now $1.60 – up 33% in 12 days.  We're already done with those and have moved on to new FXI short positions.  

Yesterday we talked about the sudden and still unexplained failures of Hanergy and Goldin and now, this morning, Ordos' (the ghost city) Huyan Investment Group is unable to pay the piper on $194M round of bonds as they have $1.1Bn in debt and just $3.5M in cash remaining.   

Huyan is just a drop in the Ordos bucket, where $3-5BBn worth of bonds are likely to default every year for the next 12 years – so the hits just keep on coming in China.  Ordos city bonds have climbed to 9.63% as the city's rating has been cut to A on negative watch.  In the rating statement, Pengyuan described the Ordos property market as “extremely not optimistic” because of the slowing economy and pressure the coal industry is facing.  Several other firms have also been downgraded and will be having trouble rolling their debt in the next round.

Meanwhile, Zhuhai Zhongfu Enterprise (a bottling company) is short $72M of the next $106M they owe on May 28th and they have just $10M left in the bank.  This company employs 4,000 people and bott;es for both KO and PEP in China.  Meanwhile, shares of ZZ are up 126% this year but have been suspended since April 29th with a $10Bn market cap.  This is the state of Chinese companies, folks – there are many more examples and here's even more.   

Failing Friday China Defaults Keep Adding

The above chart illustrates the game that is being played in China to keep things LOOKING good, even while they are falling apart.  Then we have to take into account that 90% of the public companies in China are some form of quasi-state controlled entities.  While a lot of "investors" take solace in that, believing the Government will


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