Yangzijiang Financial Holding

[weijian]

I would very much prefer YZJFH stay in China, stay right in the middle of debt mess, looking for opportunities. The street is flooded with blood because of debt mess. If YZJFH does that, I know what I would do next.

Hi donmihaihai,

I am not sure if YZJFH has the mandate to do distressed debt investing (in the style of Huarong or Oaktree). The buyer of parent YZJSB's remaining debt investment probably has the mandate and is a distressed debt investor I suppose.

On the contrary, YZJFH's mandate is to reduce its Chinese debt exposure. It takes a brave man to go against that mandate - both from an investment and investor relations perspective.

[donmihaihai]

YZJFH did provide their plans on where or what to invest. I don't see any Mandate given by shareholders.

If I am right and I believe I am, the only problem is investor problem. Not just YZJFH, but shareholders of YZJFH and investor in general. Not many peoples are able to be contrarians, especially when all lights are off.

[weijian]

YZJFH did provide their plans on where or what to invest. I don't see any Mandate given by shareholders.

If I am right and I believe I am, the only problem is investor problem. Not just YZJFH, but shareholders of YZJFH and investor in general. Not many peoples are able to be contrarians, especially when all lights are off.

hi donmihaihai,

My bad for wrong choice of word "mandate" as this word is always used by politicians when they win elections. That wasn't what I was trying to mean but it should have reflected that.

From prospectus and financial reports, the company describes its debt investments as below:
The Group invests in fixed interest debt instruments through intermediary financial institutions for specific borrowings arranged by these intermediaries, government bonds and other short-term investments offered by various banks that the Group intends to hold till maturity.

In a recent Q&A, it also further detailed that there are 2 models - (1) Provide loan directly with collateral. (2) As a preferred shareholder receiving coupons.

So the above suggests that it provide loans directly to the borrowers (with financial institutions as the broker), rather than actively purchasing distressed debt from fellow debt investors.

Of course they could be doing the latter. As a YZJFH shareholder, I would actually be happy that they do that.

[donmihaihai]

oh ya, remember LHL said PAP received strong mandate. PAP won that election so nothing wrong with that.

While there is no mandate, YZJSB shareholders voted yes to the spined off with all the grand plans, while not contractually binding, that do mean something for YZJSB shareholders and new YZIFH shareholders because they bought into the grand scheme. How and the way the management do hereon, say a lot about their characters, etc.

YZJFH generated about 10% ROE with little debts for a long time by giving loan. That is huge 10% and it is hard to see as China keep maturing, assuming that China will, anyone can get 10% or more by lending money on normal time without taking lot of risk when rates are very much below 5%. As for all the grand plans, it takes time. like watching the paint dry. It is not like snapping your fingers and half of the money will be invested as planned, return generated, valuation expanded and everyone happy.

[Big Toe]

Investors who have full knowledge of how a business is run or have managed a business as an owner/partner/majority shareholder would understand that a great deal of waiting is needed for a good outcome.

And a lot of mediocre businesses are doing well now not so much because they were superior in any way. They just happen to be in the right industry and rode the up wave. Some waves continue longer than others.

Similarly, businesses that are doing badly right now (Ie YZJFH) just happen to be caught in a correction phase in china's property cycle. There is little that could be done to fight the tide but with prudence, chances are they will come out alright.

And given how tough conditions are now to start a business(esp in sg), the chances of failure is actually much lower if one invest in a well managed company than to start one yourself. That's how I look at it. Which brings to mind 2nd chance, which is no longer a retailer but an index fund of sorts. They arrived at the same conclusion, it is better to invest than to run a business yourself.

[specuvestor]

Agree with Big Toe that it is during such times that you can stress test a business model. I think this crisis is a litmus test to their short term funding model. Whether they have enough collateral coverage or even recovery in the Chinese legal system.

Would be interesting to find out if their tenor / duration of their china portfolio has extended....

You can think of them as short term funding which is not a bad strategy in a highly volatile environment. So every year the maturity will trigger them to reassess the counterparty risk , collateral etc so I guess many are rollover loans. But it makes their aggregate loan book dynamic unlike a bank.

In latest report, "Debt investments at amortised cost" is reduced by 881m, and most of it has been moved to "Trade and other receivables" (around ~600m) instead of cash. I assume this is because the sum is now due but not collected. I wonder if this in the norm or does it suggest any difficulty in collection... Anyone with accounting knowledge can comment?

hi gzbkel,

Under pg23 of 1H22 report, it describes the receivables as below:

Our trade and other receivables increased by approximately S$674.3 million from approximately S$25.0 million as at 31 December 2021 to approximately S$699.3 million as at 30 June 2022, representing 19.3% of our current assets. The increase is mainly due to increase of prepayment of approximately S$677 million for potential investments.

1H22 report: https://links.sgx.com/FileOpen/YZJFH%20A...eID=728099

So this is not the typical "receivables" per say that one receives from a customer, but more of "pre-paid money" to buy an asset.

As for what potential investments these are, I do not remember seeing Mgt elaborate more in the reporting.

Thank you Weijian for pointing this out. I didn't notice.

Looking more closely at page 13 of 1H22 report, I noticed the following:
- Addition to debt instruments: 914,656
- Redemption of debt instruments: 1,187,773
- Investments transfer to YZJ Group before spin-off: (536,377)

So the 881m drop in debt instruments is mostly due to transfer of 536m to YZJSB, with the rest being redemption (after netting off from addition) and some currency loss.

I am curious why would they want to add 914m of debt instruments at this stage. Isn't their long term plan to reduce exposure to China debt instruments, and move more into equities?

[weijian]

@donmihaihai and Big Toe,

A little while ago, before the top of VB.com landing page become google ad's real estate (I am not complaining), it had Benjamin Graham's "Investing is most intelligent when it is most business like". Along the same vein, there may actually be a silver lining if the OPMI learns the ropes of a business. While the odds of starting/running one's own business successfully over time is really low, but hopefully he/she picks up the correct lessons and then apply it into their own investing.

So the bottomline for YZJFH OPMIs, Chairman Ren "came out" from retirement and is your jockey now. How much do you think he can be relied upon to be the competent (and right one) to steer the company across China's property downturn?

[donmihaihai]

@donmihaihai and Big Toe,

So the bottomline for YZJFH OPMIs, Chairman Ren "came out" from retirement and is your jockey now. How much do you think he can be relied upon to be the competent (and right one) to steer the company across China's property downturn?

YZJSB created 2 reasonable ok businesses and one good business. Give credit when credit is due to Ren Yuanlin. While Ren Yuanlin was the public face before his son took over, from the structure/shareholders of YZJSB, there should be many non public strong workhorses. credit goes to them as well so Ren Yuanlin might be just one of the men. 

I worry less about the loan business in China. YZJFH has the track record to back it up but it has none for the 50% new investment business. I would be more comfortable if the new investment business is under the management that created 3 businesses but no. 

Does that mean YZJFH will do great in the loan business with the current mess? Look around, do a comparative, the current property crisis is basically made in China, Chinese developers, Chinese management. 3 red lines is not hitting HK, SG, etc developers. So I do wonder whether YZJFH belong to the same group? The positive is that YZJSB went through a long and deep down shipping cycle and would certainly like to bet that they are not the same as those ex-fortune 500 developers. 

Above is the long version of what I think I know. The short answer is I don't know. My answer on YZJSB will be very different.

[CY09]

https://links.sgx.com/FileOpen/YZJFH_3Q2...eID=779009

YZJFH NPL has increased and now stands at 42%, which is higher than last year

Secondly, it is commonly thought that its DI are backed by collaterals there are 2 times the value of the loan. However, when forced to liqudate the collaterals, it is shown that 200% is in fact about 70-80%. (see page 14). As seasoned investors, we know sometimes companies would present themselves in the best light and value their assets as fully valued as possible on its balance sheet. Given that YZJFH is displaying such values, it is possible the NPL loans are only recoverable to about 60% of its value.

[Big Toe]

Slide 14 have a project re-classified out of NPL. Does it mean the project was able to pay "something" with terms eased somewhat?

In any case 42% is bad but not that bad since most 70-80% of it can be recovered somewhat. Unless of course, things start to become much worse. I think the NPL recovery, as it stands now, is still credible. My concerns are not with the management but more on how long the slump will last and how policies will affect the redeployment of capital.

To put things into prespective. Would I rather be exposed to SG property mkt or CN property mkt? SG is will be on a correction phase sooner rather than later due to a whiplash effect, whereas china is in the midst of quite a severe downturn. Here's what I observed in SG, the demand for rentals have softened quite significantly of late but the buying is still somewhat strong.