Raphael Stevens

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    Stocks making the biggest moves in the premarket: Procter & Gamble, Johnson & Johnson, Travelers and more

    Take a look at some of the biggest movers in the premarket:
    Procter & Gamble (PG) – The consumer products giant beat estimates by 2 cents a share, with quarterly earnings of $1.61 per share. Revenue also topped Wall Street forecasts. P&G said it was facing increasing commodity and transportation costs, however, and its shares fell 1.1% in the premarket.

    Johnson & Johnson (JNJ) – J&J shares rose 1% in premarket trading after the company reported quarterly profit of $2.60 per share, 25 cents a share above estimates. Revenue was slightly below analysts’ forecasts. J&J also raised its full-year outlook, noting strength across all its businesses.
    Travelers (TRV) – The insurance company’s stock jumped 3.3% in premarket action after it beat top and bottom line estimates for the third quarter. Travelers earned $2.60 per share, well above the $1.67 a share consensus estimate, helped by strong investment and underwriting results.
    Bank of New York Mellon (BK) – The bank came in 3 cents a share ahead of estimates, with quarterly earnings of $1.04 per share. Revenue also came in above consensus, benefiting from funds released from credit loss provisions, as well as increased fee income.
    Halliburton (HAL) – The oilfield services company matched forecasts, with quarterly profit of 28 cents per share. Revenue fell short of analysts’ predictions. Halliburton results were helped by rising oil prices, and the company expects that trend to continue. Its shares fell 1% in premarket trading.
    Walmart (WMT) – Walmart added 1.9% in the premarket after Goldman Sachs added the retailer’s stock to its “Conviction Buy” list, citing the company’s increasing ability to generate earnings growth.

    Philip Morris International (PM) – The tobacco producer came in 3 cents a share ahead of estimates, with quarterly earnings of $1.58 per share. An increase in shipment volumes helped revenue rise above forecasts as well.
    Alibaba (BABA) – Alibaba announced it has developed a custom computer chip that the China-based tech giant will use to power its data center servers. The chip will not be available for use outside of Alibaba. The stock gained 1.8% in the premarket.
    BioNTech (BNTX), Pfizer (PFE), Moderna (MRNA) – The drugmakers are on watch list after multiple reports that the Food and Drug Administration was set to approve “mix and match” Covid-19 vaccine booster doses this week, allowing people to receive boosters with a different vaccine than they originally received. BioNTech jumped 2.7% in premarket trading, while Moderna added 1.8%.
    Sinclair Broadcast Group (SBGI) – Sinclair is still working to contain a cybersecurity breach that disrupted operations throughout its TV broadcast stations and networks. The company said it could not yet determine if the disruption will have a material impact on its financial results.
    Zions Bancorp (ZION) – Zions beat estimates by 10 cents a share, with quarterly earnings of $1.45 per share. The bank’s revenue fell below Wall Street forecasts. Zions said loan demand has recovered after several weak quarters. Its stock slid 2.1% in the premarket.

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    Market bull Jim Paulsen downplays inflation fears, sees rising prices contributing to an economic boom

    A long-term bull believes inflation shouldn’t scare investors.
    According to Jim Paulsen of the Leuthold Group, rising prices should boost the market and economy.

    “If we just end up elevating the rate of inflation a little bit on a permanent basis, I think that might actually do a lot of good,” the firm’s chief investment strategist told CNBC’s “Trading Nation” on Monday. “We’ve been fighting inflation for four decades in this country — always being quick to tighten, slow to ease. And the result is we’ve created some of the most sluggish growth over the last 15 years we’ve had in the entire postwar history.”
    Paulsen contends higher inflation encourages more aggressive behaviors by both businesses and consumers with profitable results.
    “It stokes animal spirits,” he said. “If people think prices are going to go up over time, that means you might feel better about getting higher wage hikes, for example. And, it might cause businesses to expand more operations because they know they can grow into it with pricing flexibility.”
    He’s also not worried about the long-term impact of the supply chain turmoil. Paulsen attributes the backlog to a temporary shock caused by the Covid-19 lockdowns.
    “When you get companies preparing for a depressionary bust and instead give them a postwar boom, they just can’t catch up,” said Paulsen. “They contracted operations to the minimums to survive a pandemic.”

    Paulsen, who predicted on “Trading Nation” in August 2020 that the economic collapse would spark a massive comeback, expects the supply chain upheaval to moderate next year and leave a parting gift.
    “I still think we might be left with a persistently higher average rate of inflation,” he said.
    His base case calls for 3% to 3.25% inflation becoming the norm, and he suggests it’s a sweet spot for the economy. Over the past two decades years, it has hovered around 2%.
    “There are some good things from a little higher inflation. Not runaway, but from a little higher inflation,” Paulsen said. “Maybe we’re headed to that environment. And if we are, maybe we’re going to get a little better economic outcome.”
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    J&J Covid vaccine added $502 million to third-quarter sales

    Johnson & Johnson said it sold $502 million of its Covid-19 vaccine in the third quarter, in its earnings report Tuesday that beat Wall Street’s profit expectations.
    Here’s how J&J did compared with what Wall Street expected, according to average estimates compiled by Refinitiv:

    Adjusted EPS: $2.60 per share vs $2.35 expected.
    Revenue: $23.34 billion vs $23.72 billion expected.

    J&J increased its full-year earnings guidance to between $9.77 per share and $9.82 per share, from its previous estimates of $9.60 to $9.70 per share. It expects sales to range from $94.1 billion to $94.6 billion, up from previous guidance of $93.8 billion to $94.6 billion.
    At the same time, the company maintained its Covid vaccine sales outlook for the year at $2.5 billion.
    Shares of J&J jumped more than 1% in premarket trading.
    The company’s better-than-expected profit was bolstered by higher sales in its consumer health, pharmaceutical and medical devices units.
    Its consumer unit, which makes products such as Neutrogena face wash and Listerine, generated $3.7 billion in revenue, up 5.3% from a year earlier.

    J&J’s pharmaceutical business, which developed the single-shot Covid vaccine, generated $12.9 billion in revenue, a 13.8% year-over-year increase.
    Its medical device unit generated $6.6 billion, an 8% increase. That unit was hit hard last year as the pandemic forced hospitals to postpone elective surgeries and Americans stayed home.
    J&J Chief Financial Officer Joseph Wolk told CNBC the revenue miss is due to the Covid vaccine and medical device unit.
    The company has maintained its vaccine sales outlook for the year, and it plans to ship as much as it can through the rest of the year, he said on “Squawk Box.” J&J also experienced “fluctuations in elective procedures with the delta variant.”
    J&J’s report came under a shadow of criticism about how it handled the opioid crisis and the development of a comparatively less-effective Covid vaccine under outgoing CEO Alex Gorsky.
    In a press release, Gorsky said the financial results “demonstrate solid performance across Johnson & Johnson, driven by robust above-market results in Pharmaceuticals, ongoing recovery in Medical Devices, and strong growth in Consumer Health.”
    Earlier this month, the company asked the Food and Drug Administration to authorize a booster dose of its single-shot Covid vaccine.
    An influential FDA advisory committee on Friday said the agency should authorize boosters of J&J’s vaccine to the more than 15 million Americans who have already received the initial dose. A final decision by the FDA is expected within days.
    Correction: This story was updated to reflect that J&J missed revenue estimates.

    CNBC Health & Science

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    These travelers moved to Europe despite knowing no one — here's how they make a living

    CNBC Travel

    Many people dream of starting a new life in a new country.
    But problems, such as earning money, finding a place to live and meeting people, hold them back.

    Here are two women travelers who didn’t let these details stop them from moving to Europe — and how they feel about their decisions today.

    From tropical island to the Arctic

    It’s common to yearn for a slower pace of life. But moving from bustling Singapore to a small town in Scandinavia is likely too slow — and too frigid — for most.
    However, for 27-year-old Weisi Low, living in the Arctic created exhilarating adventures and a stronger appreciation for the great outdoors.
    After growing up fewer than 100 miles from the equator, Low now lives in Longyearbyen, Norway — a town of about 2,300 residents that is one of the world’s northernmost permanent settlements. It’s located on the Svalbard archipelago, which is east of Greenland and about 650 miles from the North Pole.

    Weisi Low moved to Norway’s Svalbard archipelago from Singapore in 2019.
    Courtesy of Weisi Low

    But Low knew what she was getting into. In 2017, she visited Svalbard as a tourist during its “dark season,” which blankets the town in darkness from November to January.

    “I have always been fascinated with traveling to secluded places and was keen on experiencing something new and out of the ordinary,” said Low.

    When I first arrived, I printed copies of my resume and went around town handing them out.

    Singaporean traveler

    Back at home, she continued to think about Norway, realizing she preferred views of snow-capped mountains over high-rise buildings. After graduating from college in 2019, Low moved to Norway with 3,000 Singapore dollars ($2,229) and a 50-liter backpack.
    “I didn’t want a life where I just woke up to buildings after buildings,” she said. “I knew early on that the conventional route many took will not excite me.”
    She gave her new adventure a timeline too — three years. “If my plans fail, all I lose is just three years of my life,” she said.

    Weisi Low spends most of her time in Svalbard outdoors, enjoying views of snow-capped mountains and the glaciers.
    Courtesy of Weisi Low

    To make ends meet in Svalbard, Weisi worked as a cycling tour guide and at a shop selling arctic equipment. She also works remotely as a marketing manager, with clients around the world.
    “When I first arrived, I printed copies of my resume and went around town handing them out to establishments in Longyearbyen,” she said. “That gave me the chance to grow my network and meet new people.”
    “Just like in Singapore, everyone knows each other as it’s a very small and tight-knit community,” she said. “Forging new friendships with people of different walks of life was one of the biggest highlights.”

    The Northern Lights can be seen in Svalbard from late September to the middle of March.
    Courtesy of Weisi Low

    In a place where polar bears roam freely, and traveling via snow mobile is as normal as driving a car, Low spends most of her time outdoors, partaking in adventures she would never experience in Singapore.
    “In the winter, you can drive over the glaciers as it’s all frozen. We took a hike up one of the glaciers called Longyearbreen and went under an ice cave where we had coffee,” said Low. “In the summer, the glaciers will melt, and you can see the water flowing down into the rivers and seas. It’s really beautiful.”
    The Northern Lights are a common sight too, said Low. “During the polar season, you can see the lights in the middle of the afternoon since the sky remains dark for months,” she added.
    Spending the past two years in Svalbard has allowed Low to grow independently and prioritize her life.
    “Svalbard has taught me the importance of having a balanced lifestyle,” she said “I prioritize my work and friendships, but… also… my desire for adventure.”

    Starting a hotel during a pandemic

    The Covid-19 pandemic caused many to rethink their work lives. But Filipina Christine Cunanan took a much bigger leap of faith by moving over 7,000 miles from home to open a hotel in Spain.

    Amid the Covid-19 pandemic, Christine Cunanan opened the Spanish luxury villa hotel La Esperanza Granada in August 2021.
    Courtesy of Christine Cunanan

    “Manila turned into a ghost town overnight and everything from work to birthday celebrations went online,” said Cunanan.
    When the international airport in Manila reopened, she booked a flight to Tokyo, where she lives part-time and works as the editor-in-chief of a travel magazine.
    On the flight, she decided to look into buying a house in Spain despite having no ties to the region. She had traveled there twice before the pandemic closed borders around the globe, and Spain was still on her mind.
    “When I got back home to Tokyo, before even unpacking my bags, I went online and searched properties in Spain,” she said. “When I saw this one in Granada online, I said ‘Wow, this is beautiful.'”
    The house was owned by a British couple, and it was licensed to function as a small hotel, although the owners used it as a private home.
    “It was perfect,” said Cunanan, despite being “in a region where I initially knew absolutely nothing and no one.”

    “People may think I exaggerate but… everyone I needed for this move and for my new business…appeared in my life at exactly the right time,” she said.
    A lawyer she’d never met handled the sale, and an acquaintance she had “spoken three words to at a cocktail party a year before” took possession of the keys in her absence, said Cunanan, who bought the house sight unseen.
    “This acquaintance’s best friend came along to help him, and the best friend has not left the property since Day 1,” she said. “He’s now my business partner.”

    La Esperanza Granada, a hotel and villa in Spain.
    Courtesy of Christine Cunanan

    Approximately one year after buying the house, Cunanan opened the luxury villa hotel La Esperanza Granada in August of 2021.
    “Moving to Spain and renovating a hotel amidst Covid was simply a matter of one door opening after another,” she said. “Some things are just meant to be.”
    In the 10 weeks that the hotel has been open, it’s hosted weddings almost every weekend, said Cunanan, adding that online reviews have been overwhelming positive.
    “With just a little inkling of the adventure that awaited and way too much recklessness, I jumped from Manila to Tokyo and then straight into the life of a hotel owner in Spain,” she said. “So far it has been one of the happiest times of my life.” More

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    HSBC and 18 other banks can now sell wealth investment products in the Greater Bay Area

    HSBC and Standard Chartered Bank are among more than a dozen lenders that can start selling investment products from Tuesday.
    It comes as China continues to reform the mainland’s capital markets and raise their accessibility to international investors.
    The Hong Kong Monetary Authority has approved 19 lenders under the Wealth Management Connect Scheme (WMC), which allows them to sell investment products in the Greater Bay Area — comprising of Guangdong, Hong Kong and Macao.

    The HSBC Holdings Plc building, left, and the Standard Chartered Plc building stand in Hong Kong, China, on Thursday, June 4, 2020.
    Roy Liu | Bloomberg | Getty Images

    HSBC and Standard Chartered Bank are among more than a dozen lenders that can start selling investment products from Tuesday, under a new cross-border investment scheme that connects capital markets in the Greater Bay Area.
    It comes as China continues to reform the mainland’s capital markets and raise their accessibility to international investors.

    The Hong Kong Monetary Authority has approved 19 Hong Kong lenders under the Wealth Management Connect Scheme (WMC), which allows them to sell investment products in the Greater Bay Area — comprising of Guangdong province as well as the special administrative regions of Hong Kong and Macao.
    This will mark the first time retail investors can engage in cross-boundary investments, according to Eddie Yue, chief executive of the HKMA.
    Sixteen banks will be allowed to sell wealth management products in both Hong Kong and mainland China, while three lenders — Bank of East Asia, Dah Sing Bank, DBS Bank — can only sell products to mainland investors via the “Southbound Scheme.”
    “We will closely monitor the operation of the Cross-boundary WMC and step up investor education and investor protection work together with the industry,” Yue said in a Monday release. He said the goal was to provide “more growth opportunities for Hong Kong’s banking and wealth management industry.”
    Hong Kong-listed shares of HSBC slipped 0.11% while Standard Chartered closed flat on Tuesday following the announcement. Other banks that also received approval, such as Bank of China and China Construction Bank, rose 1.47% and 0.74% respectively.

    On Monday, the Hong Kong Exchanges and Clearing launched its first A-share derivative product, the MSCI China A 50 Connect Index futures contract. A-shares refer to stocks of mainland China-based firms listed on the Shanghai Stock Exchange or Shenzhen Stock Exchange.
    “International investors’ interest in China A-shares has been increasing,” Wilfred Yiu, co-head of markets at Hong Kong Exchanges and Clearing, told CNBC’s “Squawk Box Asia” on Monday. He said the futures contract launch marked “a new chapter for Hong Kong,” and that global allocation to China’s markets is “still at a very, very early stage.”
    “With the launch of the Connect A50 contract, which is a great index by MSCI, it’s going to help tremendously from the risk management perspective to international investor – and that will add on in terms of the interest of coming into the China market,” Yiu said.

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    The UK has one of the highest Covid infection rates in the world right now: Here's why

    When the Covid-19 pandemic swept the globe in 2020, the U.K. was hit hard, reporting some of the highest cases numbers and fatalities in Europe.
    The U.K.’s speedy vaccination rollout was widely praised and helped to bring cases under control.
    Now the situation is looking dramatically different, with the country recording close to 50,000 new Covid cases a day — giving it one of the worst daily infection rates in the world.

    Two fans of Manchester City soccer club stand out for wearing face masks during the Premier League match between Manchester City and Burnley on October 16, 2021.
    Robbie Jay Barratt – AMA | Getty Images Sport | Getty Images

    LONDON — When the Covid-19 pandemic swept the globe in 2020, the U.K. was hit hard, reporting some of the highest cases numbers and fatalities in Europe. A speedy vaccination program managed to turn things around, however, and brought cases under control.
    Now the situation looks dramatically different. The country is recording close to 50,000 new Covid cases a day — meaning it has one of the worst daily infection rates in the world.

    On Monday, 49,156 new cases were recorded, marking the highest number in three months and taking the total number of cases to over 8.4 million in the U.K. The country also reported 45 new deaths within 28 days of a positive test, bringing the total number of fatalities to 138,629 — one of the highest death tolls in the world.

    Meanwhile, hospitalizations and deaths have been steadily increasing since the summer when Covid restrictions in England were lifted on July 19. Pubs, restaurants and nightclubs reopened and mask-wearing became (for the most part) voluntary.
    Read more: England takes leap into the unknown, lifting Covid rules as cases surge
    Thankfully, the numbers of hospitalizations and deaths have been rising at a much slower rate than earlier in the pandemic, largely due to Covid vaccines being highly effective at preventing severe infection, hospitalization and deaths.
    Nonetheless, healthcare professionals in the country’s National Health Service are warning of a tough winter ahead.

    What’s going on?

    Experts say there are a variety of reasons for the U.K.’s steep Covid numbers — ranging from the half-hearted mask adoption (even when masks are required, such as on public transport, the rule is rarely enforced) to large indoor gatherings that have allowed the virus to spread.
    The U.K.’s hesitation in vaccinating younger teenagers, something that other countries in Europe and the U.S. did much earlier, and the return to schools in September, have also been cited as reasons for the sharp rise in cases, although the boom in infections among 0-18 year olds is now ebbing as infections rise in their parents’ generation, data shows.

    People seen dining outdoors in Soho in London in September 2021. Since Covid restrictions were lifted in the U.K., people have flocked back to streets, shops and public spaces.
    SOPA Images | LightRocket | Getty Images

    Perhaps most ironically, the U.K.’s early vaccination rollout — which began in December 2020 and was one of the first in the world — is also seen as contributing to its high case rate now.
    That’s because we now know — due to an increasing body of data — that immunity in vaccinated people wanes after about six months. The spread of the much more infectious delta Covid variant in the spring and summer is also seen as a factor that has diminished vaccine efficacy.
    Dr. Eric Topol, founder and director of the Scripps Research Translational Institute, tweeted his assessment of the U.K.’s situation on Saturday, stating: “Why does the UK currently have 6-fold hospital admissions and a 3-fold higher death rate compared with Europe? Among [the] possible explanations, two that stand out are less use of mitigation measures and less vaccination of kids, age 12-17.”
    He noted that reliance on the AstraZeneca vaccine (where effectiveness has been found to decline slightly more over time than the Pfizer vaccine) as another possible contributing factor.
    While, “another potential explanation is that the U.K. vaccinated earlier than rest of Europe, and therefore has manifest more waning of protection, especially among older people,” he noted. On a more positive note, Topol noted that “the U.K. has done far better than the U.S. for uncoupling cases from hospitalizations and deaths.”

    In light of what we know about waning immunity, the U.K. (like Israel, the U.S. and other countries in Europe) decided in September to roll out booster shots to the over-50s, medical staff and anyone with underlying health conditions.
    Those who received their second dose at least six months ago are being asked to come forward first. Currently around 6.5 million people in England are eligible for a booster, with the NHS so far having administered around 3.6 million booster shots, data shows.
    Experts have called on the government to ramp up vaccinations in unvaccinated groups, mainly in young people, and to roll out boosters faster. They have also warned against complacency this winter or a reliance on a controversial “herd immunity” strategy.
    “The U.K. seems to be slowly waking up to the fact that Covid cases are too high, but the reality is they’ve been soaring for months and many countries have put us on their red list,” Tim Spector, a professor of genetic epidemiology at King’s College London and lead scientist on the ZOE COVID Study app, which collects and analyses Covid data, noted last week.
    “Infections remain high in young people, and look to be spilling over into the 35-55 year olds. If these increases creep into the over 55s it could spell disaster for the NHS this winter,” he noted. “With cases so high, it’s clear that herd immunity isn’t happening, and the risk is most people continue to believe they are safe if they have had Covid or a vaccine … We need to be doing all we can to get everyone double vaccinated and stop waiting for herd immunity to happen through natural infection.”

    Variant worries

    There are also growing concerns about a descendent of the delta Covid variant that is being identified in an increasing number of U.K. Covid cases, with some suggesting it could be another possible factor in rising case numbers.
    Last Friday, the U.K.’s Health Security Agency issued a report in which it said “a delta sublineage newly designated as AY.4.2 is noted to be expanding in England” and that it was monitoring the subtype.
    “This sublineage is currently increasing in frequency. It includes spike mutations A222V and Y145H. In the week beginning 27 September 2021 (the last week with complete sequencing data), this sublineage accounted for approximately 6% of all sequences generated, on an increasing trajectory. This estimate may be imprecise … Further assessment is underway,” it noted.
    Former U.S. Food and Drug Administration commissioner Scott Gottlieb also tweeted about the subtype at the weekend.
    “U.K. reported its biggest one-day Covid case increase in 3 months just as the new delta variant AY.4 with the S:Y145H mutation in the spike reaches 8% of UK sequenced cases,” Dr. Gottlieb wrote. “We need urgent research to figure out if this delta plus is more transmissible, has partial immune evasion?”
    The delta subtype, known formally as AY.4.2, is reported to be 10-15% more transmissible than the standard delta variant, but it is too early to say for certain whether it has been causing a spike in cases in the U.K.
    Professor of immunology at Imperial College London, Danny Altmann, told CNBC on Monday that the subtype “needs to be monitored and, so far as possible, carefully controlled.”
    “Because delta has now been the dominant mutant in several regions for some six months and not been displaced by any other variants, the hope has been that delta perhaps represented [the] peak mutation performance achievable by the virus. AY.4 may be starting to raise doubts about this assertion,” he warned.

    The U.K. has often been seen as a harbinger of things to come for other countries during the pandemic, give the fact that the alpha variant was first discovered in Britain; it then became a dominant strain of the virus globally.
    The same thing subsequently happened with the even more infectious delta variant, which was first found in India but then took hold in the U.K. before spreading around the world.

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    Watch CNBC’s Sustainable Future Forum Asia: Providing Energy

    CNBC’s Sustainable Future Forum Asia on Tuesday focuses on providing energy.
    No discussion on our Sustainable Future would be complete without taking a look at how we are going to power the change. Fossil fuels are still our main source of energy but things are changing.

    CNBC takes a look at the energy transition, from the role incumbent energy providers will play, to the new start-ups that are looking to change the business model one green-step at a time.
    The lineup for Tuesday’s sessions are below, and click here for the full schedule of the week.

    Fireside: Financing Indonesia’s climate commitments2 p.m. SGT/HK | 7 a.m. BSTSri Mulyani Indrawati, minister of finance for Indonesia.
    As the largest energy consumer in Southeast Asia, Indonesia is crucial to the region’s energy transition. The country’s finance minister, Sri Mulyani Indrawati, joins us to discuss the $5.7 billion she says is needed every year to fund its green energy transition, how it plans to finance the shift to net zero and what the government’s climate goals are ahead of COP26.

    Panel: Where is Asia-Pacific on the road to decarbonization?2:15 p.m. SGT/HK | 7:15 a.m. BST 
    Richard Lancaster, CEO of CLP Holdings, and Malcolm Turnbull, former prime minister of Australia.
    As prime minister of Australia, Malcolm Turnbull played a pivotal part in putting climate change on the national agenda. In his latest role, as inaugural chairman of GH2, he aims to put green hydrogen production front and center of the region’s shift toward decarbonization. Joining him is Richard Lancaster, CEO of CLP Holdings, one of the largest investors in the electricity industry in Asia-Pacific, to discuss the task ahead and what steps they have been taking to phase out their coal-fired assets by 2040.

    Panel: Can hydrogen power the energy transition?6:30 p.m. SGT/HK | 11:30 a.m. BST
    Marco Alverà, CEO of Snam, and Christian Bruch, CEO of Siemens Energy. 
    With the clean energy transition underway, hydrogen is back in the spotlight. Offering a light, storable and energy-dense solution to providing cleaner energy, green hydrogen is playing an increasingly important role in the journey to a low-carbon future. We’ll hear from Italian energy infrastructure operator Snam and Germany’s Siemens Energy about the role hydrogen can play in powering the energy transition, whether that transition is coming fast enough and what investment is still needed.
    Add to calendar

    Fireside: Accelerating the energy transition7 p.m. SGT/HK | 12 p.m. BST
    Ignacio Galán, chairman and CEO of Iberdrola.
    Ignacio Galán, the CEO of Iberdrola, has long been a champion of renewable energy, transforming the company from an operator of fossil fuel plants into an offshore wind and solar powerhouse. He wants there to be a sense of urgency in Europe’s transition to cleaner energy, and will discuss how we get there, what his strategy is to double Iberdrola’s renewable power capacity by 2025, and what impact the gas crisis will have on Europe’s long-term decarbonization goals.

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    How Evergrande found itself on the wrong side of China's regulators

    Worries about Evergrande’s ability to repay its debt and a total of $300 billion in liabilities has put global investors on edge about potential spillover into the rest of China’s real estate industry and economy.
    A closer look at Evergrande revealed a company with many of the same problems as others in the Chinese property sector, but didn’t act as quickly to respond to government rules aimed at resolving those issues.
    The company not only failed to address tighter regulation on debt levels, but was the biggest Chinese real estate issuer of overseas high-yield bonds.

    High-rise apartment buildings at China Evergrande Group’s under-construction Riverside Palace development in Taicang, Jiangsu province, China, on Friday, Sept. 24, 2021.
    Qilai Shen | Bloomberg | Getty Images

    BEIJING — Chinese developer Evergrande made little progress toward complying with Beijing’s crackdown on real estate debt — until it was too late for investors who poured money into its offshore bonds, now worth at least $19 billion.
    Worries about the giant developer’s ability to repay its debt and a total of $300 billion in liabilities have put global investors on edge. Beyond the company itself, there are worries about a potential spillover into the rest of China’s real estate industry or economy.

    A closer look at Evergrande revealed a company with many of the same problems as others in the Chinese property sector, but didn’t act as quickly to respond to government rules aimed at resolving those issues.
    Evergrande has failed to meet several payment deadlines since September, and the latest was on Oct. 11 for interest owed on one of its U.S. dollar-denominated bonds. That brought its total missed payment to $279 million since last month, according to Reuters.

    While the developer had taken on debt for years, its latest problems really came after tighter regulation in the last two years, analysts said.
    China’s central bank on Friday said most real estate developers had stable operations, and called Evergrande a unique case in which the company “blindly” diversified and expanded. There was little indication a full-on rescue plan was on its way.
    Here’s how the world’s most indebted property developer ended up in such dire straits:

    Evergrande crosses all three red lines

    Chinese authorities met with 12 real estate developers in August 2020, and asked them to reduce their reliance on debt. Evergrande was among those at the meeting, state media said.
    The report described a “three red lines” policy, which hasn’t been officially announced. State media describe the “red lines” as three specific balance sheet conditions developers must meet if they want to take on more debt. The rules require developers to limit their debt in relation to the company’s cash flows, assets and capital levels.
    Last summer, all 12 of the developers at the meeting had crossed at least one of the red lines, said Julian Evans-Pritchard, senior China economist at Capital Economics.

    The problem this entire industry faces is the entire model relies too much on finance.

    Zhang Yingji
    senior fellow, ICR

    One year later, Evergrande and Greenland were the only companies of the original dozen that had still crossed at least one of the red lines, Evans-Pritchard said in a Sept. 22 report. As of the end of June, he said Greenland had crossed one, while Evergrande had breached all three red lines.
    In contrast, “among the top 30 [developers], less than a third exceed any of the limits, compared with over two thirds a year ago,” he said. “Even firms that are not officially subject to the rules have generally complied.”
    Evergrande warned investors of default in late August. Just days earlier, China’s central bank and other authorities told the company’s executives in a rare meeting to resolve their debt problems.

    “The problem this entire industry faces is the entire model relies too much on finance,” said Zhang Yingji, senior fellow at Chinese real estate research institute ICR.
    He said the restrictions on how quickly developers can expand come as ensuring affordable housing is a major part of China’s economic development plan for the next five years.
    The average price for a residential home in China — typically an apartment — more than quadrupled between 2001 and 2019, while that of a new house in the U.S. rose 80% during the same time, according to official data from China and the U.S.
    The price surge came even as Beijing began in 2016 to promote a slogan that “houses are for living in, not speculation.” It was an effort to control a property market that many likened to a bubble.

    Evergrande’s U.S. dollar overseas debt

    However, in the next few years, Chinese developers continued to take on debt, particularly in overseas markets.
    Between 2016 and 2020, the industry’s value of offshore U.S. dollar bonds grew by 900 billion yuan ($139.75 billion) — that’s nearly two times the growth of 500 billion yuan in onshore yuan bonds, according to Nomura.
    Evergrande was by far the leader in overseas debt issuance, accounting for six of the 10 largest offshore U.S. dollar-denominated bond deals by Chinese real estate companies between 2016 and 2021, according to Dealogic.
    As of the first half of this year, Evergrande held 19% of U.S. dollar-denominated high yield bonds among Chinese real estate companies — the largest share, worth $19.24 billion, according to Natixis.
    Next in line by overseas bond share were Kaisa, Yuzhou, China Fortune Land Development and Guangzhou R&F Properties, the data showed. All four of these companies crossed at least one red line, with China Fortune and R&F crossing all three, according to Natixis data analyzed by CNBC.
    Hopson Development Holdings, which is reportedly set to acquire part of Evergrande, did not cross any of the red lines and ranks 28th by asset size, Natixis data showed.
    Hopson declined to comment. Evergrande did not respond to a CNBC request for comment.

    Heavy reliance on pre-sales

    Like many developers in China, Evergrande sold apartments to individual consumers before the properties were completed. This allowed the company to generate cash, while taking out loans to develop the properties.
    Over the last decade, the value of Evergrande’s properties under construction rose so quickly that it far exceeded the value of the company’s completed projects as well as what the company was able to sell.
    By 2020, Evergrande had 1.26 trillion yuan ($195.89 billion) worth of projects under construction. But that was about 70% more than the properties the company was able to sell that year, at 723.2 billion yuan. Only about 148.47 billion yuan of projects were actually completed.
    The value of properties under development accounted for just over half of Evergrande’s total assets, ticking up to 54.7% in the first half of this year, up from 54.3% at the end of last year.

    Keeping up with such a high ratio of construction projects became unsustainable once the new regulation kicked in and affected Evergrande’s ability to obtain financing.
    “Financial institutions have already curtailed their direct exposures to Evergrande over the past two years,” Moody’s analysts said in an Oct. 11 note.
    They said there was a drop in the company’s borrowings from banks, trust companies and other financial firms to 393.9 billion yuan at the end of June, down sharply from 604.7 billion yuan at the end of 2019.
    Many of Evergrande’s projects lie in smaller Chinese cities, where economists say there is an oversupply of housing, compared to China’s largest cities, where there is a housing shortage.

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    The company is also in a tougher situation than other developers because of its heavy use of supplier commercial bills – tradeable contracts for paying suppliers and construction contractors, S&P Global Ratings analysts said in a Sept. 20 note.
    “Evergrande’s contracted sales have fallen more than other issuers in the sector that have experienced distress,” the report said.
    Without sufficient financing, it is harder to keep up construction and other assets that can be sold, S&P said. “This is shutting down Evergrande’s most important source of cash flow: contracted sales of its property projects.”

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