I noted recently the tangled web of vendor financing that is at work between steel mills and its customers, like developers and ship builders, now the plot thickens with the FT reporting that:
Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank.
Some of the developers are heavily indebted, sparking questions about the motivation for these deals, and specifically whether the property companies are hoping to use their links to the banks to obtain preferential financing.
In a sign that regulators may be getting uneasy, the Financial News late last month warned developers not to expect any special treatment from their banking partners.
…“We don’t think they [the developers] expect to get funding from the banks directly, but they will be looking for opportunities for mortgage financing for their clients or financing for their contractors,” said Kaven Tsang of Moody’s.
…Evergrande acquired its 5 per cent stake in Huaxia Bank via the secondary market, becoming the bank’s fourth-biggest investor earlier this year. Evergrande has said the deal is purely a financial investment…Evergrande’s gearing ratio – net debt relative to equity – nearly doubled last year to 160 per cent, prompting Barclays analysts to describe it as “a bit out of control”.
The resilience and resourcefulness of the ponzi borrower is one of the reasons that structural issues take so long to unwind and imbalances can run far further and with much greater adverse consequences than anyone expects.
