|Bid||4.2800 x N/A|
|Ask||4.2900 x N/A|
|Day's Range||4.2500 - 4.2900|
|52 Week Range||4.2500 - 5.0900|
|Beta (5Y Monthly)||0.40|
|PE Ratio (TTM)||4.33|
|Earnings Date||Aug 26, 2021 - Aug 30, 2021|
|Forward Dividend & Yield||0.30 (7.01%)|
|Ex-Dividend Date||Jul 16, 2021|
|1y Target Est||8.03|
(Bloomberg Opinion) -- The most beautiful daughter gets married off first, a Chinese saying goes. But sometimes, a favorite child can be so pampered, so high-maintenance, that she’s homebound well past her prime years. Eventually, everyone starts wondering if she will have any suitors at all.This is what’s happening at Tsinghua University, the prestigious, nearly 110-year old school that is President Xi Jinping’s alma mater. After defaulting in mid-November, Tsinghua Unigroup Co., a commercial arm and “favorite daughter” of the university, has brought in a government-led working group to diffuse its debt crisis. On Wednesday night, the company warned that it will not be able to repay a $450 million dollar-denominated bond due on Dec. 10. With sprawling operations from memory chip manufacturing to smartphone and smart card chip design, Unigroup is the closest China’s got to Samsung Group. Without it, President Xi’s microchip dreams — outlined in his signature Made In China 2025 program — can’t be fulfilled. That ambition has come at a steep price. As of June, Unigroup was bleeding operating cash, burning through 15.4 billion yuan on research and development alone. It had 46.7 billion yuan of debt due within a year, with more than half owed to bond investors, but sat on only 42 billion yuan of unrestricted cash. Even before Wednesday night announcement, investors pretty much believed more Unigroup defaults were inevitable. The only uncertainty is how the company proceeds with restructuring, and how much money the investors can claw back. Nomura Holdings Inc. estimates creditors could recover 31% to 45% of their money from Unigroup. Distressed returns, yes, but many would be happy with that. As I’ll explain, those hopes may be too optimistic.Much may depend on which bonds investors hold — and what Unigroup decides to do about its debts. Overseas holders of the dollar bonds due this year will benefit if Unigroup chooses to avoid restructuring now and pays it off soon. To do that, the company could use some of the 9.4 billion yuan of cash it held outside China as of June (Chinese companies cannot quickly wire money out of the country because of currency controls). That will, however, come at the expense of investors who hold the longer dated notes.On the other hand, if the conglomerate goes into bankruptcy proceedings, the restructuring process would likely favor notes due next year and beyond. That’s because they happen to be guaranteed. The 2020 bond only has a keepwell clause, essentially a gentlemen’s agreement, from Tsinghua Holdings, the university’s wholly owned subsidiary that controls Unigroup. Earlier this year, a Beijing court rejected the validity of the keepwell clause in bonds issued by Peking University Founder Group, another conglomerate that went into bankruptcy. Unigroup and Founder were often held up in comparison because each was the favorite commercial offspring of two rival state-run universities. Based on bond pricing data compiled by Bloomberg, investors appear to be leaning towards the less dramatic scenario — that somehow Unigroup will continue to hang on. The 2020 bond was asking 33 cents on a dollar, while longer-dated ones were as low as 22 cents — very distressed levels. Are investors too pessimistic? Unigroup is not your ordinary state-owned entity. Its flash memory chipmaker is cutting-edge. It also controls Unisoc, China’s second largest mobile chip designer and now a supplier for Huawei Technologies Co. because the sanctioned company’s in-house designer HiSilicon Technologies Co. no longer has access to U.S. tech products. Nomura based its rosier recovery estimates on Unigroup having these assets and operations. But enterprise valuations like these may be pointless exercises. After a recent series of defaults, there’s a deepening suspicion that China’s state-owned-enterprises transfer good assets out of the way before creditors can get at them through the courts. Unigroup has played that kind of hide-and-seek before. Last month, a few days before defaulting, it pledged a 16% stake in smart-card chip designer Unigroup Guoxin Microelectronics Co., worth about $1.4 billion, to Bank of Beijing, with which Unigroup and its subsidiaries have had a long business history. Liquid assets like stock holdings can easily be shifted while those that require time-consuming appraisals — such as the nailed-down and depreciable factories and equipment of Unigroup’s Yangtze Memory Technologies — are often left to the courts and the creditors.White knights may come to the rescue — or they may not. Finding one for Unigroup is particularly hard because the chip manufacturing at its core burns cash at terrifying rates. A rescuer would probably have to pay off the short-dated bonds first — benefiting those holders — to diffuse the debt time bomb. Another dollar-denominated bond is due at the end of January.Over the years, Tsinghua University has tried multiple times to sell its controlling stake in Unigroup — without success. Past suitors have included municipal governments but they were deemed not prestigious enough for the favorite daughter. China National Nuclear Corporation, a central SOE, was looking into Unigroup’s assets, Debtwire reported Tuesday. Let’s see.So investors who bought into President Xi’s chip dream are stuck. The speeches are grand, but the reality is plagued with cash burn, poor governance, and scant access to bailouts in a country just starting to test bankruptcy proceedings. Gentlemen’s agreements can be empty promises. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- In 2018, when Chinese President Xi Jinping visited one of Tsinghua Unigroup Co.’s mega memory-chip factories in Wuhan, he said that semiconductor processing is the heart of a nation’s manufacturing industry. Well, that heart just skipped a beat.Unigroup, a commercial arm of the prestigious Tsinghua University, Xi’s alma mater, missed a payment on a 1.3 billion yuan ($198 million) note Monday, adding to a lengthening list of SOE defaults. Investors are now left guessing: What type of SOEs will Beijing support? How much money can we claw back in the event of a default?It will be a game of hide and seek. There’s now a deepening suspicion that SOEs will transfer good assets out before creditors drag them to court. A few days before its default, Unigroup pledged a 16.14% stake in smart-card chip designer Unigroup Guoxin Microelectronics Co., worth about $1.4 billion, to Bank of Beijing for a 10 billion yuan credit line. But that credit line had already been signed at the beginning of the year, and Unigroup reportedly didn't receive fresh loans in return. This echoes similar moves from two large regional SOEs. And where’s all the cash these companies claimed on their balance sheets? Yongcheng Coal & Electricity Holding Group Co.’s default on a 1 billion yuan note on Nov. 10 came as a surprise. As of June, it sat on close to 50 billion yuan of cash; only 360 million yuan was restricted as term deposits with Ping An Bank Co., the company disclosed a month ago. In late October, Yongcheng raised a 1 billion yuan three-year note, with a AAA-rating from a local agency. So traditional credit analysis, such as looking at whether a company has enough cash to cover short-term debt, doesn’t work. Investors all know SOEs’ ubiquitous AAA ratings are a joke. In the past, they tried to differentiate bond issuers by their geographical locations or the nature of their business operations. Companies from impoverished provinces that have a track record of defaults, such as Liaoning, Tianjin or Qinghai, were shunned. Meanwhile, SOEs that controlled assets with national strategic value were sought after. The latest wave of defaults proved them wrong. Yongcheng, which has 24.4 billion yuan of bonds outstanding, is an SOE from the fiscally healthy Henan province. Meanwhile, Unigroup controls one of the Chinese semiconductor industry’s two crown jewels: Its flash-memory chip factory in Wuhan is cutting-edge.One question is why Beijing is allowing SOE defaults now. Bear in mind, Xi always wanted to carry out this painful corporate deleveraging campaign. He started in late 2017, but got derailed by President Donald Trump’s trade war and then the Covid-19 outbreak. Now, both roadblocks are gone. From a politician’s eye, defaults can just be a quicker way to enforce SOE reform. As long as quality assets are hidden away, companies can go into bankruptcy court and emerge leaner. Local courts are part of the government, anyhow. Debtholders will just have to nurse their wounds. Last Friday, when Unigroup was proposing to extend its due date, parent Tsinghua Holdings’ Chairman Long Dawei said “Unigroup is not standing alone” as a show of confidence, Debtwire reported. That might be. But these SOE defaults and restructurings are also leaving investors isolated and in the dark, with no faith or assets to hold onto. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.