1.Downgrade to Evergrande and Its Frequent Equity Transfers
On June 22, Fitch Ratings downgraded the Long-Term Foreign-Currency Issuer Default Ratings (IDR) of China Evergrande Group and its subsidiaries, Hengda Real Estate Group Co., Ltd and Tianji Holding Limited, from ‘B+’ to ‘B’. In addition, Fitch downgraded the senior unsecured ratings of Evergrande and Tianji from ‘B’ to ‘B-‘. Such downgrading moves are based on Evergrande’s substantial reliance on trust loans and reduced access to debt capital markets. Fitch Ratings stated: “We believe the company’s debt reduction plan is achievable, but it is subject to meaningful execution risk and may also negatively affect the company’s business profile in the medium term.”
Interestingly, on the same day, Evergrande Group transferred about 739 million shares of HengTeng Networks Group, a Hangzhou unit, to Ruyi Films and Pumpkin Film’s founder Ke Liming at HK$6 per share, accounting for 8% of the total share capital. On June 21st, it was also announced that Evergrande’s subsidiary Guangzhou Chiron Real Estate Co. Ltd. would transfer its 29.9% stake in developer China Calxon Group Co. Ltd. to private equity firm Shenzhen Huajian Holding Co. Ltd. The transfer will make Huajian the controlling shareholder in Calxon.
The frequent equity transfers are generally believed to be related to Evergrande’s recent rush to reduce liabilities. Earlier this month, Xu Jiayin, the chairman of the board of directors of the group, said at an internal meeting that the total interest-bearing debt will be reduced from about 870 billion during the peak period to less than 600 billion by June 30. Data shows that as of the end of 2020, Evergrande’s interest-bearing debt balance is 716.5 billion, indicating the company’s plan to reduce debt by more than 100 billion in half a year.
2.Suning Plans for Transfer of Major Shareholders’ Equity
Suning Tesco announced on June 22 that the company is planning to buy unspecified assets that involve the transfer of the company’s shares. As of June 22, the work related to the aforementioned share transfer planned by Zhang Jindong and shareholder Suning Appliance Group is in progress. “If this share transfer is completed, the listed company will be in a state of no controlling shareholder and no actual controller.” Suning is planning to issue shares to fund the purchase.
Due to uncertainties in related matters, the company’s shares have been suspended from trading on June 23. The company expects to disclose the detail within 10 trading days after the suspension announcement. If the company fails to disclose the transaction plan within the above-mentioned period, trading will resume on July 7 at the latest and planning of the share transfer activities will be terminated.
Inter owners of Suning have responded to latest market rumors that the company’s subsidiary Suning Real Estate will have to declare bankruptcy soon, branding the rumors as misinformation and threatening legal action. Shares of Suning have been suspended since June 16 pending further announcement. They last traded at 5.59 yuan in Shenzhen, the lowest in eight years. Since the second half of 2020, Suning has faced a series of problems such as bond maturity and tight cash flow.
3.Launch of Crude Oil Options Open to Foreign Traders
Communist China launched its first energy options open to foreign traders in Shanghai on Monday. Open interest and trading volumes for the crude oil options were 1,652 and 4,475 lots respectively at the close, with a turnover of 50,685,700 yuan.
As the world’s largest crude oil importer and the second-largest consumer behind the U.S., Communist China started listing its crude oil futures on the Shanghai International Energy Exchange in 2018, which were the first domestic commodity futures open to foreign traders. According to the officials, the listing of crude oil options effectively supplements the crude oil futures market in improving the efficiency of price discovery in the futures market. It will also further enrich the hedging tools of oil-related enterprises, enhancing the efficiency and precision of risk management of enterprises in the crude oil industry chain. Zhu Fang, Deputy Secretary General with the China Petroleum and Chemical Industry Federation, said on Monday: “The trading of crude oil options will enrich risk management tools.” This launch is also expected to enhance Shanghai’s ability to allocate global resources.
4.Promotion of Digital Yuan Sub-Wallets
An employee of the Beijing branch of a state-owned bank recently told a reporter from China Securities Journal that the bank not only actively promotes digital yuan app registration but also encourages customers to open sub-wallets. These two tasks have been included in the performance assessment of employees. The sub-wallet refers to a wallet for different sub-scenarios of digital yuan, such as e-commerce consumption, membership management, transportation, local life, etc. Currently the digital yuan app includes more than 20 sub-wallets, including Meituan, JD, Didi, Ctrip, etc. In addition, banks frequently push messages through their apps, inviting customers to experience the digital yuan function.
Liu Bin, director of the Shanghai Pudong Reform and Development Research Institute’s finance research office, said that in the future, market mechanisms and administrative measures can be combined to promote the adoption of digital yuan. “On the one hand, government departments can encourage businesses and institutions to use digital yuan to pay wages, benefits, taxes, social security, etc. On the other hand, digital yuan can be used in governmental financial support, SME funding, and various government funds. Also, third-party payment institutions and various prepaid cards etc. can be required to use digital yuan.” Liu Bin said.
5.$5.7 Billion Privatization Deal of Communist China’s 51job
On June 21, the recruitment website 51job.com (Nasdaq: JOBS) announced that the company will be acquired by a consortium of investors at $79.05 per American depositary share. The company’s estimated equity value is approximately US$5.7 billion. The deal is 6% upside from Friday’s close. The investors include the company’s Chief Executive Officer Rick Yan, DCP Capital Partners II, L.P., and Ocean Link Partners Ltd. After the announcement of the privatization, the company’s U.S. stocks opened up more than 4% higher. After the transaction is completed, 51job will become a privately held company. The buyout deal is expected to close in the second half of 2021.
Established in 1998, 51job.com is a leading integrated human resources service provider in Communist China. The company provides integrated human resources services including outsourcing, training, professional assessment, campus recruitment, executive search, and compensation analysis. Its annual report shows that the company’s operating income last year was 3.689 billion yuan, a year-on-year decrease of 7.8%, and its net profit was 1.097 billion yuan. 51job has been publicly traded in the U.S. since 2004.
6.Increasing Imports and Inventory of Oil Products in May
According to statistics from the General Administration of Customs, from January to May 2021, Communist China’s accumulated imports of agricultural products totaled $87.76 billion, a year-on-year increase of 33.8%. The amount of imported soybean oil reached 450,000 tons, a year-on-year increase of 126.2%; the cumulative import value was $390 million, a year-on-year increase of 156%. The cumulative import of palm oil was 1.73 million tons, 28.5% higher from the same period last year. The cumulative import value was $1.32 billion, a year-on-year increase of 53.7%. A total of 1.25 million tons of rapeseed oil was imported, a year-on-year increase of 85.2%; the cumulative import value was $1.29 billion, a year-on-year increase of 128%.
Soybean oil is still in the accumulation cycle that started in late April. Its current inventory is 1.026 million tons, and the five-year average is 1.35 million tons. Vegetable oil inventory is 380,000 tons, a sharp increase from 200,000 tons in the same period last year, and the five-year average value was 420,000 tons. In contrast, palm oil has a commercial inventory of 440,000 tons, compared with 410,000 tons in the same period last year, with a 5-year average value of 580,000 tons. Its inventory has dropped from 800,000 tons in early March. In the short term, the domestic palm oil inventory may still be in a passive destocking cycle.
7.Third Auction of Imported Corn Within a Month
Communist China’s National Grain Reserve Agency announced on Tuesday that it will hold an auction of 18,207 tons of non-GMO corn imported from Ukraine on June 25. This will be the third auction of imported corn this month. The first two auctions took place on June 11 and June 18 respectively. According to the notice, the auction will start at 10:00 am on June 25. In order to participating in the auction, members must pay a transaction deposit and a performance bond in advance, amounting to 270 yuan/ton.
As the second largest corn consumer in the world, the country imported a record amount of 11.3 million tons of corn last year. According to the latest data from the General Administration of Customs, Communist China imported a total of 11.73 million tons of corn from January to May this year, an increase of 322.8% year-on-year, which already exceeded the total amount in the entire year of 2020. The Ministry of Agriculture and Rural Affairs predicted in April that it would import 22 million tons of corn in the 2020/21 marketing year, more than double the previous forecast.
8.Heavy Rainfall Drove Up Prices of New Wheat
Recently, due to the heavy rainfall in parts of Hebei and Shandong during the harvest season of new wheat, the market’ concern about the quality of new wheat has grown, leading to farmers’ reluctance to sell. As a result, the price of wheat has risen rapidly. For example, as of June 18, the average price of major wheat nationwide was 2,538 yuan/ton, an increase of 38 yuan/ton from 2,500 yuan/ton last week, an increase of 1.52%. The year-on-year increase was 222 yuan, an increase of 9.59%.
According to the data released by the State Bureau of Grain and Material Reserves, as of June 15, various grain companies had purchased a total of 9.1 million tons of new wheat, a year-on-year decrease of 1.452 million tons. The National Development and Reform Commission and the State Administration for Market Regulation sent a joint research team to Henan to conduct field research on wheat to tackle hoarding, driving up of prices, as well as fabricating and spreading information on price increases, etc.
By【G Translators- Financial Team】