$BEKE, $YANG, $NOAH - Big Profits off the Collapse of Big Brother - An Evergrande DD **TLDR; China’s biggest real estate developer and firm Evergrande has $350B of liabilities and debt and is about to cross default and possibly blow up. This would slash China’s GDP, housing market, and various sectors across the country, making for a big economic depression. Even if it doesn’t, there will be panic. I intend to become rich off this play with puts on $BEKE (big market cap and low IV real estate stock), puts on $NOAH (wealth management), and calls on $YANG (3x leveraged 🌈🐻 ETF).** ### UPDATE: HAN SENG getting FUK Hello hello, it’s your boi Ropirito again, and today I want to discuss China, Evergrande, and the imploding doom coming along with it. I intend to ride this wave and profit off the fall of China. I know lots of you are horny for the CCP so I hope this post DOES offend you. The Evergrande situation is serious and has far implications on the US, Europe and Canada too. As you may know, China is getting fucked up the butt due to one massive real estate developer called **China Evergrande Group. They are at a massive risk of cross-default, meaning the effects will spill over into several other sectors and countries.** In my eyes, they will always be Evergae simply due to the sheer scale of fuckups made over the past 4 years. I’ll go through who they are, what they’ve done, and **how we all can profit off the destruction of the Chinese real estate market in the coming months**. **I will never buy puts on America, but I will gladly short China. Let’s get started.** # Whomst is Evergrande? [ \\"I swear, I thought it was $350M in debt NOT $350B!\\" ]( So in 1996, when China was a small economic power that didn’t have to ban children’s characters (Ex. Winnie the Pooh) out of fear, a man by the name of Hui Ka Yan founded Evergrande Real Estate in Guangzhou (Southern China). Now, this man is probably more retarded than all of us combined because his first move was not to secure some base funds, but instead immediately begin constructions projects on borrowed money. In 2009, at the start of the Chinese Housing Boom, Evergrande went public and raised $722M through an IPO on the Hong Kong Stock Exchange. They started with investing in the Guangzhou Evergrande football club (soccer for you ‘Muricans). Over the years, Evergrande became the choice for property development due to a relationship with Xi Jingping and Hui Ka Yan through his football club. As development allowed citizens to rise out of poverty, more and more properties were bought, allowing them to exponentially increase their holdings over the past 10-12 years. Evergrande currently owns nearly **1300 projects across 280 cities in China and has its over leveraged tentacles in everything from EVs (Evergrande New Energy Auto), internet infrastructure (HengTen Networks), theme parks, and mineral/food companies.** # Why China Is Fuk: These guys are known as the **most indebted developer in the world** and have already had many bad incidents in the past. In 2020, a liquidity scare occurred in which Evergrande had to send a formal letter to Guangzhou officials warning them that payments they had due in January 2021 would cause a liquidity crisis and result in mass defaults across the entire financial sector. This liquidity crisis meant that even though they had around $250B of liabilities at the time, there would not be enough cash flow to even pay interest payments on the sheer amount of money loaned out from other institutions and investors. There are several more minute details like discounts on housing purchases, and bond returns that have skyrocketed to the same level as 0DTE $SPX calls. Although this DD is meant to be a serious outlook on the Evergrand issue, I would like to credit full metal retard u/SirYoloGod for the following screenshot: [ Imagine trying to advertise 10 baggers as the largest real estate failure ever. I bet one of you degenerates owns these... ]( Here’s the key. **Evergrande has only raised $8B** so far as it sold off its internet and EV divisions as well as regional banks. This is not nearly enough to cover the current **$350 Billion in liabilities**. As a result, Fitch ratings has continuously downgraded their debt and has a **high default probability rating on Evergrande as of September 8th**. Outside of Evergrande itself being screwed, China’s housing market shows clear signs of being in a bubble greater than that of the US in 2008. ***The total value of Chinese homes and developers’ inventory hit $52 trillion in 2019, according to Goldman Sachs Group Inc., twice the size of the U.S. residential market and outstripping even the entire U.S. bond market.*** This bubble has grown rapidly because over the past decade, and specifically throughout the pandemic, Chinese citizens were encouraged to invest in properties and infrastructure to not only get utility out of their assets but artificially boost local economies while convincing them that it was the safest investment possible. Of course, our main player Evergrande was behind this campaign, going as far as developing entire ghost towns in more remote areas and selling apartment units at rates that would compound 5-10% month over month. Again, **outside of Evergrande itself**, most of their properties are owned by Chinese citizens using leveraged and/or borrowed money **with the leverage ratio hitting 57% this quarter and increasing rapidly**. This number has gradually increased from around 15% in 2011 and peaked recently. Not only has Evergrande developed much of China’s housing industry on borrowed money, **but the purchases of said property is all borrowed money too.** If home prices did drop significantly, it would wipe out most citizens’ primary source of wealth and potentially[ trigger unrest as we saw this week](https://www.reddit.com/r/PublicFreakout/comments/po0ks4/chinas_second_largest_property_developer/). [ Nothing to see here, just business as usual of course... ]( As the Evergae debt crisis became worse, and the deadlines for further bond payments came closer, bond trading was halted after it fell another 23% as **two of the largest creditors for Evergrande demanded immediate repayment of some loans**. Piling on all of the investors (both citizens and institutions) and various other banking creditors, **Evergrande’s failure/inability to repay any of its debts will cause the entire financial sector to face liquidity and repayment issues**. My belief is that Xinnie the Pooh’s recent crackdowns on various sectors was a means to take control of the remaining industries that can be stable and navigated by the CCP. **The drastic measures taken on not just the tech industry but commodities and infrastructure can be considered a sign of tightening the belts before a potentially large economic downturn.** **Furthermore, 30% of China’s GDP is real estate, while Evergrande itself has caused home sales by value across the country to tank by nearly 20% since August** **and retail sales growth cut by more than half from 7.5% to 2.5%.** # What could happen next? Currently, the main effect of Evergrande defaulting is less Lehman Brother collapse at first, and more real estate market destroyed. An Evergrande fire sale would destroy housing prices and cause the most leveraged developers to blow up as nearly **30% of China’s GDP would be crippled**. In a Reuters article, one analyst described Lehman brothers as a complete financial system freeze rather than flash crash. With Evergrande defaulting, the entire real estate market will be depressed. Additionally, their liabilities extend towards 128 banks and 121 independent institutions, which would almost guarantee a liquidity crisis within the entire financial sector. Government regulators have been working constantly to deleverage the real estate market, making a bailout for Evergrande even more unlikely. The end result; GDP crush and a large slump in Chinese real estate, with spillover into financial institutions taking large losses. # How To Profit 101: **Some of these plays will involve puts, essentially shorting China and profiting as their economy slowly dies in the short term and potentially long term. Yes, puts.** **$BEKE:** Puts KE Holdings is one of the biggest real estate servicers and transactions managers in China. Think of them as a combination of Zillow and big brokerage companies. They also manage the data as a service, essentially being a feeder for the CCP on real estate info. YTD, they appear to be at a massive discount of -69% (nice). But don’t let that scare you… the depths of this melt-down will know no bottom. **I believe this is currently the best play because as the Evergrande situation evolves and they most likely default, BEKE’s industry and main source of revenue will get fucked**. A collapse of the housing bubble would end most of $BEKE revenue in the short term and serve as a **short term catalyst** for a much larger crash in $BEKE’s stock price. BEKE will be an obvious target for the market to sell off. An added benefit to this play is that BEKE has pretty low IV and flies under the radar, so puts are cheap at the moment and can profit from an increase in uncertainty bumping up the IV. Finally, earlier in August a whale that bought 130,000 (\~$4M) worth of $10 puts for September 17th (2DTE). They might have been on to something. This is extremely degenerate and I highly suggest not following whoever this is. However, it might highlight the sentiment towards $BEKE. **$YANG**: Calls I have seen this ticker thrown around several times in the past few weeks here, and I have personally mentioned it on a separate DD posted earlier today. **$YANG is the China 3x Leveraged Bear ETF.** This play is for direct exposure to the overall market in China tanking and gives that sweet, sweet leverage I know you all love. During large economic downturns in China, this ETF tends to spike massively (100’s of percents). Yeah, that’s all I have to say for this one since it just exists to bet on China going fuk. **There is also high OI on the 65C for January 2022, indicating there are other larger players thinking similarly. This one I have calls on since it is an inverse ETF.** **$NOAH** \- Puts. This is my most speculative play of the three tickers mentioned here. $NOAH Holdings is a wealth management and investment advisory service company for high net worth individuals in China. **They have 2 main divisions:** Asset Management, and Lending. Let’s explore how both divisions might get fucked. **Asset management:** Their asset management division may be on alert by now as market panic has started to set in. In the case their AUM is also wrecked in the process, that will permanently cut off a large portion of revenue. It’s also worth noting that when a massive credit crisis occurs, there are just less rich people to make money from. **Lending:** Nearly $9.1 Trillion is thought to be managed by unregulated creditors, and it is unknown whether or not they are tied to the $300B in Evergrande liabilities. Similarly, $NOAH has faced similar issues in the past and **because they operate like a bank but actually are not one, they will not receive the same support that a bank would. Essentially, they have no one to bail them out in an emergency.** [ In case you aren't fully literate ]( # The Counter Case: The main bull thesis / counter argument is a “Bailout from Beijing”. However, in 2019, Xi ordered provincial (state) governments, specifically in Guangdong, to create plans to manage debt problems with large firms, including potential buyers of the firm’s assets. This past month, regulators have signed an agreement to allow Evergrande to re-negotiate future payment deadlines with creditors. The keyword here however is **future**. Now, **why wouldn’t Xinnie the Pooh** want to save Evergrande if it defaulting would pose serious economic threats? There’s a few reasons. 1. Bailing them out would encourage other retards in the sector to follow the same path of reckless borrowing (this has happened twice before on a smaller scale). However, it may prevent damage to millions of Chinese homeowners that would stir discontent and weaken the CCP. 2. The problem is simply too huge. In the name of development and GDP, Xi gave Evergrande a free pass and $300B worth of Yuan would need to be printed to cover them. Not only would this devalue the Yuan but it makes up **2.1%** of China’s GDP. This is simply a case where the concept of “too big to fail” may not actually be valid. 3. Even if a bailout did occur, that’s not a good look. Consumer confidence would decrease rapidly and other firms would continue to push new market bubbles under the assumption that a bailout will always be available. Volatility in prices would increase rapidly as there would be confusion between how the PRC prices property versus individual developers. This would reflect uncertainty in the general stock market as well as a bailout indicating weakness in stocks and the overall economy’s stability. On top of all this, PRC may impose the prices of houses across the entire country while local property transactions have drastically reduced as official prices are being placed on them rather than “market value”. They are also trying to steer away from incentivizing speculation as new restrictions on purchases with credit are being introduced daily. [ Yes this is a ghost town. No, it is not haunted. All you will find is Xi's cameras. ]( # Positions: I am currently in with: **$YANG Jan 2022 65C** **$BEKE Jan 2022 12.50P** **$BEKE Oct 2021 12.50P** **$NOAH Dec 2021 30P** **These plays will make Evergrande and China dying a profitable play. This is not financial advice.** **TLDR; China’s biggest real estate developer and firm Evergrande has $350B of liabilities and debt and is about to cross default and possibly blow up. This would slash China’s GDP, housing market, and various sectors across the country, making for a big economic depression. Even if it doesn’t, there will be panic. I intend to become rich off this play with puts on $BEKE (big market cap and low IV real estate stock), puts on $NOAH (wealth management), and calls on $YANG (3x leveraged 🌈🐻 ETF).**Notes via a user.