the remarkable cycle of collateral pledged (presumably once) on the way in. what is the multiplier in derivatives on the way out after the margin call and who is on the hook ?
pledges in the dark
pledges in the dark
While HNA has disclosed little about its credit arrangements, data from Chinese stock exchanges show listed companies typically can borrow about 40 cents for every dollar of shares pledged.
HNA entities pledged shares to Chinese state-owned banks, securities firms, trusts and foreign banks, according to an analysis of filings. UBS Group AG, the pledgee in the Deutsche Bank transaction and one of four foreign lenders in the Hilton deal, declined to comment. In one case, an HNA subsidiary pledged shares in Bohai Financial Investment Holding Co. to 19 entities. Among the pledges was a $300 million stake pledged to yet another HNA subsidiary. HNA declined to comment on the Bohai pledges.
Some Chinese tycoons have faced financial struggles that underscore the risks of such arrangements. Jia Yueting, founder of internet media giant LeEco, had part of his stake in a publicly traded unit frozen by a Shanghai court this month after his businesses faced a cash squeeze. The stock dropped to a two-year low in April, when trading was halted in Shenzhen. Jia, who had pledged almost all of his stake in the unit as of March 31, didn’t respond to a request for comment sent through a spokeswoman.
“It’s mainland Chinese culture; they’re much more adventurous with pledging of shares,’’ said Alex Wong, a Hong Kong-based money manager whose $110 million Leverage Partners Absolute Return Fund has outperformed 99 percent of peers tracked by Bloomberg over the past five years. “The market isn’t too picky when everything looks fine, even though there’s actually a huge inherent risk."
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