Tue Feb 8, 2022 12:59 pm

From Reorg Asia’s Managing Editors
In this column, managing editors Stephen Aldred and Shasha Dai take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, Southeast Asia, India and Australia.

Over the weekend, I read with delight the latest from one of my favorite writers, The Wall Street Journal sports columnist Jason Gay, a dispatch from the Beijing winter Olympic games. Brimming with Jason’s trademark wit and humor, his personal account of arriving at and staying in the bubble—greeted at the airport by men and women dressed in hazmat suits who gave “brain-tickling nasal swabs”—reminded me of my own experience when Beijing played host to an earlier Olympics, the 2008 summer games. Travelling with an infant, we visited family members and toured newly built venues like the Bird’s Nest and the Water Cube. My parents adorned their house with likenesses of the games’ five mascots, Beibei, Jingjing, Huanhuan, Yingying and Nini, the first words of whose names combined produce Bei Jing Huan Ying Ni, or Welcome to Beijing.

That in about 14 years, the host country has gone from opening its arms to international recognition and appreciation to being more assertive and inward-looking is probably commensurate with China’s ascension to the world’s second-largest economy. Christopher Johnson, president of risk advisory China Strategies Group in Washington, was quoted by WSJ as saying that China’s message is, “We’re here, get used to it.”

Nonetheless, China’s (slight) insecurities around the winter games, which have been diplomatically boycotted by the U.S. and other countries, created an opening that was aptly capitalized on by Russian president Vladmir Putin, who met for a summit in Beijing with his Chinese counterpart Xi Jinping just hours before the winter games began. The Kremlin lost no time in releasing a joint statement—which Chinese state media did not immediately release though made reference to it—that mentioned a redistribution of power and certain states that interfere in the affairs of other sovereign nations.

Images of Putin and Xi standing shoulder to shoulder are akin to giving the U.S. the middle finger (or two). Just hours earlier, the U.S. reported that Russia might be circulating allegedly fabricated videos of Ukraine attacks on Russian interests as a pretext for invading Ukraine. Both China and Russia have long imperial histories, feel that they have been wronged by capitalist powers and harbor geopolitical aspirations. Both have territories that they deem integral to their states—for Russia, it’s Ukraine; for China, Taiwan. Keeping Putin and Xi joined at the hip is their shared desire to stand up against Western military prowess and the conviction that they should divide spheres of influence in Eurasia and keep out U.S. sway.

That’s their beliefs now and here. Times change. Former British Prime Minister Henry Palmerstone once said, “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.” After all, it was Stalin and Hitler who signed the German-Soviet Nonaggression Pact back in August 1939, on the eve of WWII, an agreement that was only to be shattered when German troops invaded the Soviet Union in June 1941. The Soviet Union then found itself forming alliances with the U.S. and Britain, only to push hundreds of miles past the German front lines, drop an iron curtain over Eastern and Central European countries shortly after the Nazis were defeated and witness the dawn of the Cold War with the West. Like the Warring States era in ancient China, the patterns of alliance and opposition are ever-shifting.

One may ask: What does all this have to do with distressed debt?

With the Chinese state being such an explicit player—in addition to its roles as the regulator and referee—in the restructuring of distressed companies, the government can no longer be brushed aside as an insignificant bystander and instead needs to be inspected and studied much as a marshal investigates its opponent ahead of major military actions. China Evergrande Group, after months of being incommunicado, held a conference call with investors on Jan. 26. Some may say the call was held in response to ratcheted up pressure from the ad hoc committee of bondholders who criticized the lack of meaningful actions from Evergrande to address its offshore liabilities. The ad hoc committee threatened legal actions, in response to which Evergrande pleaded more time and patience.

A source with knowledge of the situation said that since the parties signed an NDA in October, the ad hoc committee has not received much information from the company. Requests for comment sent to the publicly disclosed email addresses of financial advisors to Evergrande and the company’s risk management committee generated no response by press time.

The seven-member risk management committee, in particular, represents the state’s interests and has its own set of financial and legal advisors that are separate from the company’s. The mere presence of the state interest—even without Evergrande citing “its size, complexity of its businesses and the myriad of interested parties”—points to a drawn-out process. And this state player is a savvy one, which has dealt with international negotiations for a while. State news agency Xinhua issued a separate statement that referenced the joint statement with Russia but didn’t mention NATO, which served to appease Putin and at the same time preserved Xi’s bargaining power with the U.S.

If China could say to international sports spectators, “We’re here, get used to it,” then they could say to Evergrande bondholders, “Six months, that’s our timetable, deal with it.”

–Shasha Dai, Managing Editor

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