China Aoyuan’s prospects looked good from a distance
A Hong Kong hedge fund led by a professional poker player sees China Aoyuan Group as a busted flush, and Nine Masts Capital has joined Citibank in taking legal action to recoup more than $131 million owed to them by the cash-strapped mainland developer.
On 23 December, Nine Masts and Citi filed a claim in the First Instance of the High Court of Hong Kong for a debt in the amount of $131,014,770.47. The claim arises from the “alleged events of default” under a credit agreement that includes certain non-payment events disclosed in a company announcement earlier this month, Aoyuan said Tuesday in a filing with the Hong Kong stock exchange.
The board of directors at Aoyuan, which ranked as China’s 31st largest developer in terms of contracted sales as of the third quarter this year, has been actively seeking advice from its financial and legal advisers to assess the merits of the claim and decide whether to contest the claim, according to chairman Guo Zi Wen.
The low-profile Nine Masts was founded in 2010 by Bing Wang, a former Deutsche Bank trader and World Series of Poker contestant, in order to pursue a “relative value” strategy that exploits the mispricing of different asset classes and securities.
Debt Bet Gone Sour
On 2 December, Aoyuan disclosed in an exchange filing that it had received notice from creditors demanding payments on aggregate principal in the amount of $651.2 million after a series of credit downgrades.
China Aoyuan Property chairman Guo Zi Wen
S&P Global Ratings slashed Aoyuan from B+ to B on 15 October and further to CCC on 16 November. Fitch, meanwhile, cut the company’s rating from BB to B+ on 3 November, to B- on 19 November and to CCC- on 24 November. Moody’s downgraded the group from B1 to B2 on 5 November and further to Caa2 on 22 November.
Aoyuan said at the time of the announcement that it had not made the payments or reached an agreement with respect to alternative payment arrangements with the creditors and that it had been actively communicating with its creditors to seek to resolve any consequential issues consensually and amicably and within a reasonable time frame.
In November, Aoyuan agreed to sell off a redevelopment project in Hong Kong’s Mid-Levels to raise cash, anticipating an estimated loss of HK$176.6 million (now $22.6 million) on the disposal.
Aoyuan’s Hong Kong-listed shares are down 81 percent in the year to date. For the first half of 2021, profit attributable to shareholders was RMB 2 billion (now $310 million), representing a 13.6 percent slump from RMB 2.4 billion in the same period of 2020, according to the developer’s interim report.
Treasure Hunters
The Hedge Fund Journal reported that Bing Wang ran Deutsche Bank’s Saba proprietary trading strategies group in Asia for a decade under then trading star Boaz Weinstein until it shut down at the end of 2008 after losing $1.8 billion in the global financial crisis in 2008.
Along with former Deutsche colleague Ron Schachter, Wang launched Nine Masts in 2010 as a multi-strategy arbitrage fund investing in debt, equity and derivative instruments, including long or short positions in bonds or loans.
According to the Journal, the name Nine Masts “auspiciously harks back to treasure ships commanded by fifteenth century Chinese explorer Zheng”.
Wang placed 34th in the main event of the 2005 World Series of Poker in Las Vegas and has $365,775 in career winnings at the table, including a $274,090 prize in a single live tournament, according to online sources.
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