Did Oaktree Capital Fall into the Evergrande Trap?
The case has more to do with corporate governance than regulatory risk
It was widely reported earlier that Oaktree Capital, the famed U.S. distressed debt investor, would potentially take over two Evergrande (3333.HK) properties as collateral for its USD 1 billion loan. This was commonly viewed as an “audacious” move but somewhat a success story in the Evergrande debt fiasco.
However, a recent Chinese article on 36Kr (36氪) suggests both projects used as collateral for the Oaktree loan are facing some difficulties. The report suggests the distressed debt market in China is not as simple as it seems, especially for foreign investors.
My take is that the Evergrande case has more to do with corporate governance than regulatory risk. Evergrande is a poorly managed company to begin with. Based on our “one strikeout” rule, this would be instantly blacklisted regardless of how attractive its debt or stock price looks. When investing in China, you need to be extremely careful about who you work with, and you need to have extremely low tolerance for the governance flaws. Don’t swim with the sharks.
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