Aurelia Butler

More such disclosures are expected during the upcoming earnings season, putting pressure on Chinese authorities to do more to limit the contagion from developers’ financial crisis and avert job losses.Guangzhou Holike Creative Home Co, a furniture maker, became the latest company to disclose losses linked to Evergrande, which has racked up over $300 billion in debt, including 200 billion yuan ($31.44 billion) owed to suppliers via commercial paper.Holike said in an exchange filing on Wednesday it expects 2021 net profit to slump as much as 60% from a year earlier, hurt by receivables to Evergrande that are unlikely to be collected.In addition, China’s property market downturn has dented the value of a company it acquired in 2020, resulting in impairment losses, Holike said, adding it has slashed business with Evergrande and is seeking claims.Beijing Jiayu Door, Window and Curtain Wall Co also flagged risks this week, saying it turned in a loss of up to 1.4 billion yuan last year, thanks to receivables from Evergrande that are likely to go sour. Earlier this month, Guangdong Pak Corp, a maker of lighting fixtures, said it forecast a 85%-90% drop in 2021 earnings, thanks to a jump in Evergrande-related impairment losses. And Shenzhen Wenke Landscape Co said it fell into the red last year due to Evergrande defaults. Most China-listed companies will start reporting annual results next month, with more such disclosures expected, as dozens of Chinese suppliers have disclosed debts owed by developers like Evergrande. Some have already set aside provisions.And despite some easing measures taken by the government to ease developers’ liquidity stress and support the cooling economy, recent data suggests the problem will get worse. Units of Shimao Group Holdings, Kaisa Group Holdings and Greenland Group were named and shamed this month in a list of Chinese companies “consistently overdue” on commercial paper payments.And the total number of such delinquent firms jumped 26% in December from the previous month, according to the list compiler, the Shanghai Commercial Paper Exchange. [L1N2TS06Q]Evergrande, the world’s most indebted developer, is seeking a debt restructuring as it struggles to pay creditors, suppliers and investors in wealth management products. Shanghai Trendzone Holdings Group, a residential decoration company, said recently it had filed 333 lawsuits against Evergrande and its subsidiaries, and the impact on earnings is unclear before legal rulings. ($1 = 6.3558 Chinese yuan renminbi)($1 = 6.3613 Chinese yuan renminbi) More

The world’s largest sovereign wealth fund has warned that investors face years of low returns as the surge in inflation becomes a permanent feature of the global economy.Nicolai Tangen, chief executive of Norway’s $1.3tn oil fund, told the Financial Times he was “the team leader for team permanent” in the fierce debate over whether the jump in rates is transitory or a lasting threat.Consumer price inflation is running at its highest level for more than two decades in the world’s big industrial economies, in particular in the US, where the annual pace of price growth hit 7 per cent in December, up from just 0.1 per cent in May 2020.Tangen said the oil fund, which owns the equivalent of 1.5 per cent of every listed company in the world, thought inflation “could be stronger than what is generally expected” as the world experiences both high demand and lingering disruption to supply chains.“We are seeing it across the board, in more and more places. You saw Ikea increasing prices by 9 per cent, you have seen food prices going up, continued very high freight rates, trucking rates, metals, commodities, energy, gas . . . We’re seeing signs on wages as well.”The former hedge fund manager said: “How will it pan out? It hits bonds and shares at the same time . . . for the next few years, it will hit both.”Economists are divided over whether the surge in inflation is fleeting. Some argue the pandemic caused a temporary shock to supply chains that coincided with a sharp economic recovery, which will ease over time.Market measures of inflation expectations suggest investors are not overly concerned about runaway inflation. One popular gauge, the ten-year break-even rate, shows inflation moderating from today’s levels to roughly 2.5 per cent. The two-year measure indicates inflation will remain just above 3 per cent in the near term.But Tangen said other factors, including more people retiring or leaving their jobs, strengthened his view that the rises are permanent.Both bonds and stocks started 2022 on the back foot, and investors’ longer-term expectations for mainstream capital markets are becoming gloomier.AQR Capital Management, a quantitative investment group, estimates that a classic balanced portfolio of 60 per cent stocks and 40 per cent bonds will return just 2 per cent annually after inflation over the next five to 10 years. That is under half the roughly 5 per cent average enjoyed over the past century.Large investors have sought to beef up returns with so-called “alternative” investment strategies, including hedge funds, venture capital and real estate. Their assets under management grew to $13.3tn last year, according to data provider Preqin, which predicts the alternative investment industry’s assets will grow to $23.2tn by the end of 2026. The mandate of the oil fund, housed in Norway’s central bank, only includes stocks, bonds and real estate. It had its fourth-strongest year for returns last year, posting a 14.5 per cent increase. It has grown steadily since the global financial crisis in 2008, but Tangen warned that could be coming to an end.“We will have much tougher times ahead . . . with extremely low interest rates and a very high stock market, and with increasing — and in some places accelerating — inflation, we could see a long period of time with low returns,” he said.Historically the fund has “outperformed in up markets and underperformed in down markets”, he said. However, the former founder of London-based hedge fund AKO Capital, who took charge of the oil fund in September 2020, is aiming to change that through “a lot of smaller tweaks”, including employing forensic accountants to help find companies to underweight in its portfolio.Additional reporting by Colby Smith in New York More

Zambia’s president has promised not to favour Chinese creditors over western bondholders as he seeks a resolution to the southern African nation’s debt crisis. Zambia’s debt woes triggered the continent’s first pandemic-era sovereign default in 2020; Lusaka is in the process of restructuring about $15bn of external debts in order to secure a $1.4bn IMF loan. Talks with creditors are due to take place in the coming weeks. The restructuring is seen as a test case for whether China will accept losses from a surge in loans to Africa in the past decade. Annual Chinese lending to Africa peaked at just below $30bn in 2016.“We want to resolve the debt situation — it has to be resolved,” Hakainde Hichilema said in an interview with the Financial Times. “It’s good for Zambia, it’s good for creditors, because in the situation we were when we took office, it was a no-win situation. No one was benefiting.”Last month, the head of the Paris Club group of wealthy creditor nations warned that China’s increasingly dominant role as a lender to poor countries deterred many from seeking debt relief.About $6bn of Zambia’s debt is owed to Chinese creditors who helped finance a spending splurge that ended in crisis under Edgar Lungu, Hichilema’s predecessor. “What we don’t intend to do is to cross-subsidise — one debt stock holder paying a higher price, if you want to put it that way, or having better terms and another having worse terms,” Hichilema said. “One creditor being of Chinese origin or another origin is not much of the issue here. It’s to make sure we come out of the problem.”Hichilema won an election landslide against Lungu last year but has said he had inherited a near-empty treasury after years of corruption. His government in December secured a deal in principle with the IMF that it hopes will anchor talks with creditors.

A Bank of China billboard at Kenneth Kaunda International Airport in Lusaka, Zambia. © Waldo Swiegers/Bloomberg

Zambia’s $3bn dollar bonds have been in default since it skipped interest payments in 2020. Chinese creditors agreed to freeze interest payments on their loans even as international bondholders refused to agree to a suspension. But private investors wonder if their Chinese counterparts will take actual losses on their debts — or enforce their claims using what analysts have said are often unusually strict contract clauses.Zambia needs to squeeze as much relief as it can out of creditors because the IMF bailout is likely to impose tough targets on finances at the same time as the government is promising to protect spending on social services. This year’s budget aims to reduce the deficit from 10 per cent to 6.7 per cent of GDP, and to deliver surpluses in the years after.“We are working on ensuring that we have a common framework in dealing with this debt challenge” including recent meetings, Hichilema said of the talks with creditors. “We are working with Chinese colleagues to make sure they are part of the common framework.”Hichilema has also pledged to recover assets allegedly looted under the previous government, but progress has been slow. “You will see progress very soon and we are already making progress,” he said. Lungu has denied any wrongdoing.In late January, Zambian civil society groups criticised “recent governance breaches” under Hichilema’s government, including the police giving an official warning to a TV station that broadcast a critical story involving the president’s adviser.Hichilema’s government is yet to repeal cyber security and public order laws that were used to repress the opposition under his predecessor. They would be looked at in parliament soon, he said. But Hichilema said that compared with the crackdown under Lungu, civil society’s freedom to criticise him was “good — it’s not a bad thing”. He added: “We have created those opportunities [for criticism] which were not there just six months ago.” More