Chinese art auction stokes concerns about fate of missing entrepreneur
Sale of painting owned by Duan Weihong raises possibility Beijing is forcibly disposing of her assets
A famous painting originally owned by a missing Chinese businesswoman has been sold in Beijing by a state-owned auction house for Rmb38m ($6m), raising questions about whether her assets were being forcibly liquidated.
Duan Weihong, an entrepreneur also known as Whitney who was close to the family of former premier Wen Jiabao, originally paid $5m for “Prayer”, a 2012 oil painting by Chinese artist Zeng Fanzhi, according to a book recently published by her ex-husband.
In Red Roulette, Desmond Shum described Duan as “one of Zeng’s patrons” who competed against rival collector François Pinault, the billionaire French luxury magnate, for his art. Duan had originally intended to house the painting and other works by Zeng in a luxury hotel development in Beijing, according to Shum
“She did not only buy Zeng’s works,” said a person close to the artist. “She was also one of his biggest supporters.”
The artwork was sold to an unidentified buyer on Thursday night by Beijing Poly International Auction, a unit of state-owned China Poly Group, at a price far higher than the auctioneer’s initial estimated value of Rmb8m-Rmb16m ($1.3m-$2.5m). Poly described the seller as an “important institution” but declined to comment further on the provenance of the painting.
Shum, who lives in the UK, said he was “very sorry” to learn that “Prayer” was up for sale. “It’s a great painting,” he added.
Duan disappeared in 2017, ostensibly as part of an investigation into Sun Zhengcai, another senior politician she had cultivated. Sun, once the youngest member of the Chinese Communist party’s 25-member politburo, was viewed as a potential successor to President Xi Jinping until he was arrested in 2017. He was sentenced to life in prison for alleged corruption a year later.
It has never been confirmed by government or party investigators that Duan was detained. She resurfaced briefly in September when she phoned Shum urging him not to publish his book about their dealings with the Wen family, Sun and other party elite.
Shum said at the time that he believed Duan was forced to make the call under duress and was not free.
Duan could not be reached for comment about the sale of the painting, which was first reported by The Art Newspaper. Zeng did not respond to a request for comment.
Demand for Zeng’s works has cooled over the past decade. On Monday, however, the Beijing-based artist was ranked by the Hurun Report, which tracks the wealth of China’s richest entrepreneurs, as the world’s 10th hottest artist, based on sales of his works in 2020 totalling $39.3m.
On Wednesday, another Zeng work, “This Land So Rich in Beauty No 2”, sold for HK$40m ($5.1m), well above its initial estimated value of HK$10m-HK$20m.
It is not uncommon for prominent Chinese entrepreneurs to run into legal jeopardy and later emerge with their assets largely intact. But the risks are greater for lower-profile figures with close business ties to elite party families.
Xiao Jianhua, a financier, has not been seen since Chinese police kidnapped him at a luxury Hong Kong hotel in 2017 and spirited him across the border with mainland China. His detention has never been confirmed by the government or party and his financial empire was dismantled by regulators last year.
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* Citi Cuts U.S., Japan Stock Recommendations on Omicron, Fed
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* Morgan Stanley Sees End to Shipper Supply Chain Logjam in 2022
Asian stocks were mixed Friday as regulatory risk took a toll on Chinese technology shares and traders awaited a U.S. jobs report that could stoke expectations for a quicker reduction in Federal Reserve stimulus.
A Hong Kong gauge of Chinese tech firms slid toward a record low after losing $1.5 trillion of market value since a February peak. Investors were spooked by ride-hailing giant Didi Global Inc.’s plan to delist from the U.S. under pressure from Beijing, and growing scrutinyof mainland firms traded in America.
U.S. equity futures fell, continuing a choppy week for markets. Crude advanced after OPEC+ proceeded with an output hike but left room for quick adjustments due to a cloudy outlook.
Volatility across assets remains elevated, reflecting the Fed’s shift toward less generous monetary settings and uncertainty about how the omicron outbreak will affect global reopening. The hope is that vaccines will remain effective or can be adjusted to cope. New York state identified at least five cases of omicron, which is continuing its worldwide spread. In the latest U.S. data, jobless claims remained low, suggesting additional progress in the job market. Traders are awaiting payrolls numbers Friday, which could shape expectations for the pace of Fed policy tightening. Bloomberg Economics expects a strong report.
Elsewhere, developer Kaisa Group Holdings Ltd. sank in Hong Kong after failing to win approval for a debt swap, underscoring China’s property-sector woes. Grab Holdings Ltd., Southeast Asia’s biggest ride-hailing and delivery company, tumbled in its first day of U.S. trading.
Elon Musk sold an additional $1 billion worth of Tesla Inc. shares to satisfy tax withholding obligations related to the exercise of stock options.
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S&P -0.08% Nasdaq -0.16% EuroStoxx +0.37% FTSE +0.27% Dax +0.35% SMI
Macro :
- Citi Cuts U.S., Japan Stock Recommendations on Omicron, Fed
- China Star Trader’s New Fund Attracts $16 Billion in One Day
- Berkshire’s Munger Says Now ‘Even Crazier’ Than Dotcom Bust
Keep an eye on :
Keep an eye on :
- III LN : 3i Said to Weigh $1.2 Billion Sale of Consumer Health Firm Havea
- ADYEN NA : Adyen Issues 403,724 Shares at EU240 Apiece Under EBay Contract
- AIR FP : China Says 737 Max to Resume Commercial Operations by Early 2022
- ALV GY : Allianz Sees EU3.6B Capital Release on U.S. Reinsurance Deal
- ASSAB SS : Assa Now Sees Purchase of Spectrum Hardware Unit Closing in 2022
- NDA GY : Aurubis Sees 2022 Pretax Operating Profit EU320M to EU380M
- BOTHE BB : Bone Therapeutics Private Placing Prices at EU0.68 Per Share
- IAG LN : British Airways, Phillips 66 Reach Pact on Cleaner Jet Fuel
- BVI FP : Bureau Veritas Targets Adj. Operating Margin Above 16% in 2025
- CO FP : Vesa Equity’s Casino Stake Rises Above 5% of Voting Rights: AMF
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- CYAD BB : Celyad to Issue 6.5M Shares to Fortress at $5.00 Apiece
- COPN SW : Cosmo Holds ~96.5% of Cassiopea After Extra Acceptance Period
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- EVK GY : German Chemical Giants Pass on Higher Energy Prices to Customers
- LDO IM : KNDS Readies EU650m Binding Bid for Leonardo Units: Reuters
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ETFs shine as high taxes loom on US mutual fund capital gains
Several large asset managers have warned capital gains distributions will be 20% or more of the funds’ NAV
This year is shaping up to be a rough tax year for many active mutual funds and could prompt some investors in taxable accounts to shift their assets to the more tax-efficient ETF structure, analysts say.
American Century, Columbia Threadneedle, Harbor Funds, Invesco, MFS, T Rowe Price and Vanguard have warned active mutual fund investors to expect year-end capital gains distributions equivalent to 20 per cent or more of the net asset value of the fund, according to a Morningstar review published this month.
Allspring Global Investments, the former fund business of Wells Fargo, estimates it will have two funds with distributions of 30 per cent or more of NAV, and six others with at least 20 per cent distributions, according to Cap Gains Valet’s data.
AB, BlackRock, Franklin Templeton, Janus Henderson and JPMorgan will also each be likely to have multiple funds distributing double-digit-percentage gains, Morningstar’s report notes. For some, those distributions will be up significantly from last year, when they posted mid-single-digit gains.
Industry-wide, mutual funds issued $71.9bn in capital gains during the first half of 2021, more than double that of the first six months of 2020, according to the Investment Company Institute‘s most updated tally.
Meanwhile, just 9 per cent of the ETFs offered by BlackRock, Vanguard and State Street Global Advisors will distribute capital gains this year, according to CFRA research. Only 2 per cent of the 415 equity ETFs they collectively manage will do so.
Most of the ETFs passing along gains will distribute 1 per cent of NAV or less, wrote Todd Rosenbluth, CFRA’s ETF research chief, in a research note published last week.
Tax efficiency has long been one of the biggest selling points for ETFs due to the wrapper’s creation and redemption process, which includes in-kind exchanges of securities for fund shares, analysts say. In addition, index ETFs generally have lower turnover of holdings than active mutual funds.
“The overwhelming majority of ETFs will avoid the type of punch-to-the-gut taxable capital gains distributions that are in store for a large number of actively managed mutual funds this year,” said Ben Johnson, Morningstar’s head of ETF research.
“I think investors’ tax pain will continue to drive more of each incremental dollar of flows in taxable accounts towards ETFs,” Johnson added.
In some cases, investors’ move to ditch mutual funds for ETFs or other investment options was making the tax situation worse for shareholders that remain, Rosenbluth said. “Strong [market] performance coupled with redemptions is a recipe for capital gains,” he said. Such a combination forces portfolio managers to sell off securities that have appreciated to pay back shareholders or otherwise rebalance their portfolios.
US equity mutual funds bled $187bn during the first 10 months of the year, Morningstar Direct data shows. Some $106bn of that came out of domestic equity growth funds — the type of funds throwing off the most significant capital gains, Morningstar noted.
The capital gains hit from outflows can be exacerbated when previously fast-growing funds close to new investors, because there are few inflows to balance out redemptions, according to Morningstar’s capital gains review.
Meanwhile, ETFs already have smashed through last year’s sales, with $290bn going into US equity strategies year-to-date through October, compared with $129bn in all of 2020, Morningstar Direct data shows.
About $16bn of that haul has gone into active US equity ETFs. Such products could have higher turnover than index ETFs, which could make the active versions less tax efficient, analysts noted. But funds that must sell securities to make portfolio changes were unlikely to have significant gains to book because the funds were newer, and stocks therefore had less time to appreciate, CFRA’s Rosenbluth said.
High capital gains distributions could be the straw to make ETF holdouts change their mind, Rosenbluth said.
However, some mutual fund investors might be unaware of the tax differences between ETFs and mutual funds, he noted. In addition, some investors may hold active funds in tax-deferred accounts such as 401(k)s or IRAs, or be unconcerned about tax. Plus, tax-sensitive investors might be loath to sell mutual funds that have racked up strong gains — triggering a tax bill on the fund itself — just to move into an ETF, he said.
Chinese Developer Kaisa Fails to Agree on Bond Swap
Kaisa had proposed exchange for bonds coming due Dec. 7
Chinese property developer Kaisa Group Holdings Ltd. 1638 -9.80% failed to persuade bondholders to agree to a $400 million debt swap and warned it might not be able to repay creditors when the bonds it was trying to exchange mature next week.
Shenzhen-based Kaisa is one of the Chinese property sector’s biggest offshore borrowers, after China Evergrande Group, with about $10.9 billion of dollar bonds outstanding as of the end of June. In 2015, it became one of the first Chinese developers to default abroad.
Kaisa had proposed exchanging $400 million of debt due Dec. 7 for new notes due in June 2023. On Friday, it said some investors had tendered their bonds, but it was unable to reach the minimum 95% threshold it had set for the deal to proceed.
“There is no guarantee that the company will be able to meet the repayment obligations under the existing notes at maturity,” Kaisa said in a filing. “If the company is unable to repay the existing notes at its maturity or agree with its holders on alternative arrangements, it would have a material adverse effect on the group’s financial condition.”
Kaisa said it was in discussions with some holders of the bonds that mature next week. It said it would explore solutions to its liquidity problem, including renewing and extending borrowings and selling assets.
Soon after the proposed exchange was announced, Nomura credit analyst Iris Chen wrote in a note to clients that the proposal didn’t solve Kaisa’s liquidity problems, while the terms didn’t offer enough incentive for bondholders to exchange.
Efforts by Beijing to control developers’ leverage, a slowdown in home sales and the crisis at Evergrande have rattled investors. As prices for outstanding debt have fallen, the market for new dollar-bond sales has all but shut—making it tough for property companies to refinance obligations that are coming due.
Several developers have defaulted on dollar debt in recent months, including China Properties Group Ltd. and Fantasia Holdings Group Co. , while others, such as Yango Group Co. and Xinyuan Real Estate Co. , have carried out successful debt swaps. Ratings firms often classify these as distressed-debt exchanges, meaning they help companies avoid formal defaults but switch investors into less financially attractive securities.
Hong Kong-listed Kaisa is also nearing the end of a 30-day grace period for more than $88 million of coupon payments that were due last month but that it failed to pay on time. It didn’t specify whether there was any such grace period for repayment of principal on its maturing bonds.
A Kaisa bond due 2024 was bid at about 36.5 cents on the dollar on Friday morning in Hong Kong, according to Tradeweb. Kaisa’s credit ratings have already been slashed to levels that indicate a high risk of default, and its shares have tumbled.
Kaisa said last month that it plans to speed up asset disposals to meet investor obligations, adding that it would try to sell assets in Shenzhen, Shanghai and other places.
It's Make-Or-Break Moment For Property Junk Bonds
By Ye Xie, Bloomberg Markets live commentator and analyst
Thursday’s news of another missed bond payment by a Chinese developer reminded investors of the struggle homebuilders face, even as the worst of the regulatory tightening is behind. Debt issued by property developers, most of them junk-rated, may soon start to diverge -- with the strong credits swimming and the weaker ones sinking. In fact, an S&P Global study shows half the B-rated private developers won’t survive a stress test in the worst-case scenario.
China’s government advisers are proposing a 2022 growth target that’s lower than the 2021 one of “above 6%,” Reuters reported, adding that the new objective could be as low as 5% to 5.5%. While comments from senior leaders call for stabilizing house prices, they fall short of rolling back curbs. All point to a tight lid that will remain on housing markets and any relaxation or easing will be in a gradual, piecemeal manner.
Moody’s cut China’s property sales forecast on Thursday and reiterated a negative outlook for the nation’s housing sector, blaming “strict regulatory controls” that will “constrain ... onshore and offshore funding access” and lead to “defaults, declining sales and rising investor aversion.” Contracted property sales are expected to fall 5%-10% in 2022 versus a prior projection range of flat to a 5% drop.
Against such a policy backdrop, developers’ fortunes could soon start to diverge. Some Chinese developers are seeing the light at the end of the tunnel, rushing to raise funds in the onshore bond market after private-sector homebuilders issued the least amount of yuan notes in five years. Investors including T. Rowe Price Group Inc., Allianz Global Investors and Goldman Sachs Asset Management are starting to tap opportunities selectively.
Meanwhile, those with poor finances continue to suffer. The latest victim is Shenzhen-based Kaisa Group Holdings Ltd., which has yet to pay interest due Wednesday on a dollar bond, two note holders said. The firm had to make a $17.5m coupon payment on $300m note due 2026, Bloomberg data shows. There’s a 30-day grace period before a default can be declared.
S&P’s research showed that half of the B-rated developers cannot meet their debt obligation within a year.
The default rate for Chinese junk bonds is expected to fall from 13.6% this year, but will remain high at 9.7% in 2022 due to property sector troubles, JPMorgan wrote in a client note. JPMorgan favors BB-rated high-yield bonds, betting that the developers will survive and yields in mid-teens are juicy enough. For B-rated notes, the bank sees markets mostly pricing in “selected defaults” and others should eventually recover once the fear subsides.