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Embedded Media Technology: Too Early To Fish The Bottom Of China’s Real Estate Bonds, Says Greifenberg Digital – Form 6-K

Too early to fish for the bottom of Chinese real estate bonds,
Greifenberg Digital says

NEW YORK, January 19, 2022 – Greifenberg Digital, a member of IMTE Group, today commented on the risks to Chinese real estate bonds as measured by its suite of quantitative models.

“Large parts of China’s real estate bond market are still too risky for investors,” Greifenberg Digital’s Jerry Lucas said after the bulk of Chinese real estate companies’ US-dollar bonds closed at new lows. The Bloomberg Index of China’s U.S.-denominated high-yield bonds (Bloomberg Index ID I36616) closed Jan. 18 at 53.7, down from a high of 120 in March 2021. “Although bonds from some property companies with stronger balance sheets rose in price today [January 19], more indebted developers remain at very high default risk, according to our models.”

U.S. dollar bonds from Country Gardens, one of the strongest promoters, rose in Hong Kong on Jan. 19 on hopes of easier regulatory and monetary policy, according to financial news.

“For most sponsors, the capital cushion for creditors remains extremely thin and the risk of default remains high. More clarity is needed from both issuers and regulators before the riskiest part of the real estate market becomes attractive,” added Lucas.

Greifenberg Digital recently launched Credit AI™, a risk analytics suite that applies artificial intelligence/big data technology to a universe of 30,000 Chinese corporate bonds. According to a white paper by Greifenberg published Dec. 7, artificial intelligence credit models predicted the crisis in China’s mortgage bond market last year.

“The equity cushion on the balance sheets of the strongest real estate companies is shrinking as they sell assets and raise discounted equity,” said Lucas, chief executive of Greifenberg. “The reduction in capital reserves in turn leaves the real estate sector closer to default.”

The Chinese high yield market lost ground in the second half of 2021 and continued to post losses in the first two weeks of January 2022.

Sunac China Holdings Limited (1918.HK) issued shares in Hong Kong on January 12 at a 15% discount to the previous day’s close, and its shares drove the property market lower.

Credit AI uses four models, including a contingent claims analysis module that assesses the issuer’s default option. Less balance sheet equity and higher equity volatility increase the probability of default in this model, based on the work of Nobel laureate Robert Merton.

Greifenberg’s models also analyze sentiment via natural language processing of news and social media and apply machine learning to balance sheet analysis.

“The Merton approach gives us a real-time indicator of credit risk,” Lucas added. “What we are seeing from the stock price and volatility of the most vulnerable real estate companies tells us that the risk of default remains elevated.”

“In the case of Fantasia Holdings Group Co., Limited (1777.HK), the distance to default as calculated by the contingent claims analysis model had declined for six months before the price of Fantasia’s bonds fell in July 2021. This has been true for most struggling real estate companies One or more of Credit AI’s models sent a warning signal long before the event,” Lucas added.

“If we look at where Fantasia’s default risk is trading today, we see there has been no real improvement and its bond prices continue to bounce lower.”

“We see an almost identical pattern in the case of Kaisa Group Holdings Ltd (1638.HK). For example, Kaisa’s distance to default has narrowed since mid-June 2021, but bond prices have reacted only in October.

“Now we see that the distance to default remains extremely low, and Kaisa’s bond price follows suit.”

“The market tells us that the underlying assets of highly leveraged real estate companies are still subject to price discovery. There are many unknowns, including the extent to which public banks will lend to struggling real estate companies, and terms on which state-owned enterprises will buy assets from weak hands.The Chinese government is likely to favor homebuyers who have already made down payments for apartments and suppliers over bondholders.Net, we believe investors should wait for clarity before bargain hunting.

About Greifenberg Digital Limited (“Greifenberg”)

Greifenberg is a Canadian company engaged in credit research in the Chinese fixed income market. Greifenberg has developed an innovative AI/Big Data corporate bond analysis suite focused on the Chinese market. For more information, please visit www.greifenbergcapital.com.

About Integrated Media Technology Limited (“IMTE”)

IMTE is an Australian company specializing in the manufacture and sale of nano-coated plates for filters, the manufacture and sale of electronic glass, operating a digital asset trading and financial research platform. For more information, please visit www.imtechltd.com.

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