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China Evergrande: Raising Equity, Cutting Debt

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China’s third-largest property developer by sales, Hong Kong-listed China Evergrande, has raised $9bn by selling a stake in its mainland China property arm, Hengda Real Estate, to a consortium of Chinese investors. Hengda holds most of Evergrande’s mainland property assets, and this is the third share sale this year, raising a total of Rmb130bn ($20bn) in total, and leaves Evergrande with a 63.5% stake in Hengda. The latest sale values Hengda at Rmb425bn ($64bn), a 35% premium to Evergrande’s HK share price, and the group is working on a listing of Hengda on the mainland Shenzhen stock exchange, where property shares trade at a sharp premium to their counterparts in Hong Kong.

It’s All About the Debt

Evergrande was China’s largest property company in 2016, but also its most indebted, with a net debt to equity ratio at an eye-watering 600% in June 2016. But the Chinese government has been very vocal about the macro-financial risk from highly leveraged property companies, and Evergrand has been cutting debt, buying back shares and planning the Shenzhen listing of Hengda. The market has rewarded this strategy with a 480% rise in Evergrande’s share price, and the company said that this latest share sale would allow it to reduce its net gearing by a further 40% from the much improved 240% at its June 2017 interim results.

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Japan Is Behind Bitcoin’s Rise

Japan Bitcoin

Deutsche Bank released a research note saying that Japanese investors account for bitcoin’s meteoric rise.

Deutsche Bank analysts have said they believe that individual Japanese foreign-exchange (FX) traders are instead moving towards leveraged cryptocurrency trading in the search for astronomical returns. Already, Japan makes up 50% of the world’s leveraged FX trading and Nikkei recently said that 40% of cryptocurrency trading was denominated in yen throughout October and November. Evidently, the Japanese are growing tired of years of ultra-low interest rates and are turning to the blockchain to boost their savings.

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Japanese Startup Ispace Raises $90m


Ispace Inc raised $90m from Japan’s largest corporates in a bid to reach orbit by 2019. 

Ispace is backed by Japan Airlines, Tokyo Broadcasting System Holdings and also government-backed Innovation Network Corp. of Japan. The company plans to sell advertising space on its spacecraft, which will then feature prominently in distributed images. However, Ispace also envisages the use of rovers that will offer a “projection mapping service”, which will essentially produce a tiny billboard on the surface of the moon. This is the latest announcement in what is rapidly shaping up to be a wider commercialisation of space exploration. Elsewhere, SpaceX and Blue Origin are developing reusable rockets, while Planetary Resources intends to mine asteroids.

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China’s Central Bank Reacts to Federal Reserve Rate Rise

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China Interest Rate Rise

The Story

China’s central bank increased rates on short terms lending instruments within hours of the Federal Reserve raising their base rate from 1.25% to 1.5% on Wednesday. In doing so, the Chinese government aims to put a stop to potentially destabilising capital outflows.

Chinese reverse repurchase agreements increased by five basis points for 7-day and 28-day reverse repurchase by 5 basis points to 3.5% ad 3.85% respectively.

Why It’s Important


The move signals a departure from ultra-low interest rates, which have become the norm since the global financial crisis.

China said their response was a “normal market reaction.” However, the Chinese rate rise was too small to have had a significant effect on capital flows, says Chen Ji, a Bank of Communications analyst. Whether this response will shield China from capital outflows is questionable.

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