What next for Evergrande’s creditors?
A Hong Kong court on Monday ordered the liquidation of Evergrande, the heavily indebted Chinese property giant. The decision comes two years after the company defaulted, setting off a financial crisis at other developers and adding to the challenges facing the world’s second-largest economy.
The company’s dissolution raises questions about fairness for overseas creditors — which could have wider implications for foreign businesses operating in China.
How Evergrande fell: The company was once deemed too big to fail, racking up debt to expand during a property boom that made the real estate sector a key driver of China’s economic growth. But as the economy slowed, property sales plummeted, and Chinese regulators began clamping down on excessive leverage and speculation. Evergrande struggled to refinance its debts, which had ballooned to more than $300 billion, and repeatedly sought more time to work out a deal with creditors.
The judge presiding over Evergrande’s bankruptcy case has now called time after two years of talks. Hong Kong-listed shares in Evergrande, which continued to trade despite the bankruptcy proceedings, plunged more than 20 percent before trading was halted, valuing the developer at just $275 million.
Creditors are likely to struggle to get their money back. There’s little sign that China’s property prices will recover soon, or that consumers will start buying like they once did. Sales of new homes fell 6 percent last year, to a level last seen in 2016.
The proceedings will test protections for overseas investors. The Hong Kong judge appointed the Western restructuring firm Alvarez & Marsal to liquidate Evergrande. But most of the company’s assets are in mainland China, where liquidators appointed by Hong Kong courts haven’t historically been allowed to take control of assets.
Evergrande’s fate has broader implications for international businesses in China. Foreign investors have pulled billions out of the country, as President Xi Jinping tightens his grip on the economy even while officials publicly assert that China is open for business.
“People will be watching closely to see whether creditor rights are being respected,” Dan Anderson, a partner and restructuring specialist at the law firm Freshfields Bruckhaus Deringer, told The Times. “Whether they are respected will have long-term implications for investment into China.”
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In other China news: Regulators have imposed limits on short-selling, in an effort to halt a stock market slide driven by wider concerns about the economy.
HERE’S WHAT’S HAPPENING
President Biden vows to respond to a deadly attack in Jordan. After the White House blamed Iranian-backed militia for a drone attack that killed three U.S. service members over the weekend, Biden said that “we will hold all those responsible to account.” Iran distanced itself from the attack this morning, but the deaths raise the prospect of a widening regional conflict in the wake of the war in Gaza. Oil prices rose after Biden’s comments, but later retreated.
United Airlines reportedly begins talks to buy Airbus jets. United’s C.E.O., Scott Kirby, recently raised the prospect of purchasing more A321neo planes to make up for delays of Boeing aircraft following safety questions about the 737 Max 9, according to Reuters. Last week, Kirby called the grounding of the Max 9 — and subsequent delays of Max 10 jets that United had ordered — “the straw that broke the camel’s back for us.”
X blocks searches for Taylor Swift amid a flood of explicit deepfake photos of the singer. The social network has temporarily halted showing results for Swift’s name after accounts repeatedly posted the pictures, which experts said were probably generated by artificial intelligence. Tech moguls and lawmakers said the incident showed a need for greater guardrails around the technology, especially with fake content posing a potential threat for upcoming elections.
Interest rates, jobs and earnings are in focus this week. The Fed is set to announce a decision on interest rates on Wednesday; investors expect no change, but will listen to what Jay Powell, the central bank’s chair, may say about when cuts will come this year. Nonfarm payroll data for January is due on Friday, with economists expecting fewer job additions but the unemployment rate to stay steady. Companies reporting this week include Alphabet, Amazon, Apple, Boeing, General Motors, Meta, Microsoft and Starbucks.
Haley donors waver as Trump momentum builds
With Donald Trump speeding toward the G.O.P. presidential nomination, donors who have opposed him are starting to split into two camps.
Some remain resolute in funding Nikki Haley, his remaining rival for the nod. But others appear increasingly likely to focus on other races.
A hedge fund mogul doubles down on Haley. “I may have to contribute more now,” Cliff Asness, the billionaire co-founder of AQR Management, wrote on the social network X over the weekend. “Bring it Donald.”
Asness, who is a co-host of a Haley fund-raiser scheduled for this week, likened his bet to a venture capital investment: “Venture capital is supposed to be usually 100% loss futile with a big payoff if it’s not.”
But a Koch-affiliated political network may concentrate on Congressional races. In a meeting with donors over the weekend, officials at the super PAC arm of Americans for Prosperity defended supporting Haley over Trump. And the group is still helping her in South Carolina ahead of the state’s primary on Feb. 24.
But the super PAC appears likely to turn its focus to helping Republicans win key Senate and House races. “If Trump is ultimately the nominee,” a representative for the group told Axios, “the threat of a Democrat sweep increases dramatically, making the Senate and House strategies that much more important.”
One thing to watch: what members of the American Opportunity Alliance, a network of Republican megadonors, do after hearing pitches from the Trump and Haley camps this week.
A gambling giant doubles down on the U.S.
Flutter, the publicly traded gambling giant that owns the sports betting site FanDuel, will begin trading on the New York Stock Exchange on Monday. It wants to make the U.S. listing its primary one, while its existing one on the London Stock Exchange would become secondary.
It’s looking to grow its position in the booming U.S. gambling market. Beyond that, Flutter appears to be the latest European company to bet that it can get a higher valuation by crossing the Atlantic.
The American gambling sector reached a record $60 billion in revenue last year, following a 2018 Supreme Court decision that effectively allowed states to legalize sports betting.
FanDuel is one of the top companies in the sports-betting business, though its market share was surpassed last year by its archrival, DraftKings, whose shares were up more than 150 percent over the past year.
The U.S. is already Flutter’s biggest market by revenue, and the company is counting on growth there. “They’re very much a company that is now defined by the U.S. opportunity,” Chris Grove, a partner at the consulting firm Eilers & Krejcik Gaming, told DealBook. “It makes sense that they would want to be listed on the U.S exchange.”
And having a U.S. listing could bolster Flutter’s valuation, given the greater liquidity and bigger array of investors playing in American markets. The company “believes they should be getting the kind of valuation DraftKings is enjoying,” Grove said.
It’s a reminder of how the London Stock Exchange has suffered as a number of companies fled for American exchanges over the past year in part over valuation concerns. (David Schwimmer, the head of the London exchange, has called that belief a “myth.”)
Should unions support mergers?
When the powerful Communications Workers of America union supported Microsoft’s takeover of Activision, it argued that the deal would benefit “the company’s workers and the broader video game labor market.” Its endorsement added to Microsoft’s extensive political efforts to win approval for the deal, which closed last month.
Weeks later, Activision announced that it was laying off 1,900 workers, or about 9 percent of its work force. Commentators and others pointed to the cuts as another example of why unions shouldn’t support mergers.
Microsoft struck an unusually labor-friendly deal with the C.W.A. Under the broad agreement, the tech giant agreed to take a “neutral” approach to efforts to unionize employees. Labor advocates hoped the deal would create a precedent that would extend beyond Microsoft.
Union support is in high demand among deal makers. Companies seeking to do transactions in the Biden era have hoped to win these groups’ endorsements to curry favor with a White House that is seen as pro-labor. That can give labor groups leverage to demand certain concessions, while giving them an opportunity to expand their membership rolls, Harry Katz, an expert on labor relations at Cornell, told Dealbook.
But those endorsements don’t always protect jobs. Last year, the American Economic Liberties Project, a progressive think tank, urged regulators to consider labor as part of antitrust reviews, citing deals that unions supported but were then followed by layoffs, including US Airways and American Airlines and Albertsons and Safeway.
“As a general rule unions shouldn’t support mergers,” Matt Stoller, the research director at the A.E.L.P., wrote on social media after the layoffs at Activision were announced.
The Activision layoffs did not happen in a vacuum, as many tech companies are cutting their work forces. That may make it difficult to know which layoffs to attribute to the deal and which to broader industry trends.
“The layoffs impacting video game workers across Microsoft today are not an isolated occurrence,” Beth Allen, a C.W.A representative, told DealBook. “The neutrality agreement that C.W.A. negotiated with Microsoft remains the best path for video game workers anywhere in the U.S. to achieve job security and protection from layoffs.”
THE SPEED READ
Deals
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Reddit is said to be weighing a valuation of at least $5 billion for its planned I.P.O. (Bloomberg)
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Holcim, a Swiss building materials giant, plans to spin off its North American operations, potentially valuing that business at over $30 billion. (WSJ)
Policy
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Several of the Biden administration’s top trade officials are reportedly being pushed out over frustration over progress on achieving the White House’s goals. (Politico)
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A footnote in a court filing in one of Donald Trump’s fraud cases raised the question of whether a debt that the former president’s company owed actually existed. (Daily Beast)
Best of the rest
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