FT : Evergrande default fears drive Asia junk bond yields to decade highs

Evergrande default fears drive Asia junk bond yields to decade highs
Property sector crisis mounts as deadline passes for Chinese developer’s $148m coupon payments

Evergrande was on course to miss a deadline on three interest payments to international bondholders on Tuesday, as yields on risky Chinese corporate bonds traded near decade highs on concerns that a growing number of developers in the country faced default.

The world’s most indebted developer was due to make interest payments totalling $148m on dollar-denominated bonds on Monday but bondholders have not yet received any funds, according to two people familiar with the matter. The bonds were last trading at 21-22 cents on the dollar.

Evergrande originally missed a crucial $83.5m interest payment late last month on a bond maturing next year. The missed payment triggered a 30-day grace period before the company formally defaults. It has now missed at least five bond interest payments.

The developer’s unfolding liquidity crisis has triggered a reckoning over the health of the wider Chinese property sector, as sales slow and Beijing presses developers to reduce debt, with many of Evergrande’s peers also approaching default.

Asia’s high-yield bond market, in which Chinese developers are among the largest issuers following decades of rapid urbanisation in the country, has been roiled by panicked trading in recent days that has pushed yields sharply higher.

Since Friday, yields on an ICE index tracking Chinese corporate issuers in the Asian dollar high-yield market have soared to 22 per cent, the highest since 2009, compared with just 13 per cent at the start of September and 10 per cent in June.

Sinic Holdings, a Chinese developer, said on Monday evening that a default on bonds coming due this month would “likely occur” because the company did not have enough “financial resources”. The bonds are trading at about 25 cents on the dollar.

Last week, luxury developer Fantasia, which was founded by a niece of former Chinese vice-president Zeng Qinghong, defaulted on a $206m bond.

Credit default swaps on five-year Chinese sovereign bonds have so far this week risen 8 basis points to 59bp, their highest level since April 2020, with analysts suggesting the move was linked to the property sell-off.

“The problems in the Chinese property sector are now impacting upon investors’ general view of systematic risk,” said Charles MacGregor, head of Asia at Lucror Analytics. He added that Chinese high-yield bonds were “under extreme pressure given a dearth of buyers”. 

China Modern Land, another developer, said on Monday that it would attempt to extend the maturity of a $250m note by three months, while Sunac China Holdings has come under heavy scrutiny in recent weeks over a draft letter to a local government that warned of a “turning point” in the real estate industry.

Sentiment towards Evergrande securities worsened considerably in July after a series of incidents that included the freezing of one of its deposits at a mainland bank and the halting of some project sales.

In late August, the developer, which has almost 800 projects in hundreds of Chinese cities and has been under government pressure to reduce its debts for a year, warned of the risk of default.

A sell-off in its bonds soon spread to other heavily leveraged developers, including Fantasia and Guangzhou R&F, whose bonds have fallen sharply in recent days.

Market volatility has risen over concerns about developers’ ability to refinance, combined with slowing sales of new homes and land across China’s property sector, which accounts for about a quarter of the country’s economy.

International bondholders in Evergrande have hired investment bank Moelis and law firm Kirkland & Ellis to advise them ahead of what is expected to be one of China’s biggest-ever debt restructuring processes.

The advisers told bondholders on Friday evening that they had received no “meaningful engagement” from the company and expected a default was “imminent”. 

Trading in Evergrande shares is halted in Hong Kong, as are those of its property services unit, which noted a potential takeover offer last week.

>>> US After Hours Summary: MATX +5.1% higher on bullish guidance; QTRX up +19.9

After Hours Summary: MATX +5.1% higher on bullish guidance; QTRX up +19.9% after receiving FDA Breakthrough designation

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: MATX +5.1% (guides Q3 EPS above dual analyst consensus)

Companies trading higher in after hours in reaction to news: WWR +23.4% (provides results from Definitive Feasibility Study), QTRX +19.9% (receives Breakthrough Device designation from the FDA for Simoa pTau-181 blood test), GERN +10.4% (announces publication of analyses comparing real world data to IMbark Phase 2), VCYT +1.1% (releases new data on its Envisia Genomic Classifier), XP +0.9% (reports performance highlights for Q3), FTI +0.6% (awarded long-term charter and services contract by Petrobras), ORN +0.2% (CFO to step down)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: None

Companies trading lower in after hours in reaction to news: RLAY -8.9% (commences $350 mln public offering), BEN -1.2% (reports Sept AUM), AMK -0.1% (provides highlights for September), AOS -0.1% (increases dividend)

>>> US Close -0.72% S&P -0.69% Nasdaq -0.64% Russell -0.56%

Closing Stock Market Summary

The S&P 500 declined 0.7% on Monday to close at session lows. The Dow Jones Industrial Average (-0.7%), Nasdaq Composite (-0.6%), and Russell 2000 (-0.6%) fell comparably to the benchmark index after each traded higher in early action. 

The session started with the S&P 500 increasing as much as 0.6% in a mechanical trade, followed by a dip into negative territory in the afternoon on no specific news. Sellers maintained control as losses accelerated into the close, leaving nine of the 11 S&P 500 sectors in negative territory. 

The communication services (-1.4%), utilities (-1.4%), and financials (-1.0%) sectors fell at least 1.0%, while the real estate (+0.2%) and materials (+0.03%) sectors were the only sectors that closed higher. There wasn't a noticeable preference for value stocks or growth stocks. 

The flimsy price action was said to be a byproduct of the Treasury market being closed for Columbus Day, which reduced the number of market participants and removed one gauge for economic sentiment. In addition, there was no economic data to influence investing decisions.  

Early on, investors focused on the inflation narrative, as WTI crude futures briefly topped $82.00 per barrel amid well-known supply constraints. The S&P 500 energy sector (-0.4%) coughed up a 1.7% intraday gain, though, as crude futures settled closer to $80.50/bbl ($80.43/bbl, +1.03, +1.3%). Natural gas futures fell 4.1% to $5.35/MMBtu. 

Comcast (CMCSA 52.22, -2.48, -4.5%) was a notable laggard that weighed on the communication services sector after Raymond James downgraded the stock to Mkt Perform from Outperform. CMCSA shares fell 4.5%. 

In other corporate news, Merck (MRK 79.93, -0.70, -0.9%) confirmed it submitted an emergency use authorization application to the FDA for its COVID-19 oral antiviral. Emerson Electric (EMR 94.18, -2.46, -2.6%) confirmed an agreement to merge two of its software units with Aspen Technology (AZPN 159.00, +17.45, +12.3%) in a cash-and-stock deal worth about $11 billion.

Separately, auto supplier Aptiv (APTV 160.15, -4.97, -3.0%) lowered its FY21 revenue guidance by about $1 billion amid the ongoing chip shortage. The Q3 earnings reporting season will unofficially begin on Wednesday. 

Looking ahead to Tuesday, investors will receive the NFIB Small Business Optimism Index for September and the JOLTS - Job Openings report for August. 

  • S&P 500 +16.1% YTD
  • Dow Jones Industrial Average +12.7% YTD
  • Nasdaq Composite +12.4% YTD
  • Russell 2000 +12.5% YTD

WSJ : The 27-Year-Old Friends Behind Puff Bar—Teens’ Favorite E-Cigarette

The 27-Year-Old Friends Behind Puff Bar—Teens’ Favorite E-Cigarette
Patrick Beltran and Nick Minas, co-CEOs of Puff Bar, defend efforts to keep fruity flavors on U.S. market and outside of FDA’s purview

Two 27-year-old vaping entrepreneurs are the mystery men behind Puff Bar, the most popular e-cigarette brand among teens, which regulators have tried and failed to force off the U.S. market.

In interviews with The Wall Street Journal, the business partners discussed the brand’s popularity among young people and Puff Bar’s decision to reformulate its products with synthetic nicotine so they don’t fall under the jurisdiction of the U.S. Food and Drug Administration.

“We’re doing everything we can to prevent underage usage,” said Patrick Beltran, who identified himself as co-owner and co-CEO of Puff Bar with his business partner Nick Minas. Mr. Beltran and Mr. Minas said the rise of youth vaping is the result of lax enforcement of smoke shops that they said are selling e-cigarettes to minors. They added that counterfeiters have contributed to the problem by flooding the market with Puff Bar fakes.

Mr. Minas said he and Mr. Beltran are co-CEOs and sole owners of the Puff Bar brand. Their ownership couldn’t be independently confirmed.

Puff Bar’s vaporizers are similar in shape to the market-leading e-cigarette brand Juul, sold by Juul Labs Inc., but Puff Bars are disposable and come in a wider array of flavors, including Watermelon, Lemon Ice and Blue Razz. They are sold online and in stores for as little as $9 apiece. Juul for several years was the leading brand among children and teens. Its popularity among young people dropped this year after it halted sales of its sweet and fruity flavors and took other steps to prevent youth use of its products.

Puff Bar voluntarily halted its sales in July 2020, amid a disagreement among its shareholders over how to address the issue of youth use, Mr. Minas and Mr. Beltran said. A week later, the FDA ordered its products off the U.S. market. In February, Puff Bar resumed its sales with reformulated products containing synthetic nicotine, which isn’t derived from tobacco. The FDA regulates tobacco products and smoking-cessation devices such as nicotine gum; synthetic-nicotine vaporizers don’t fall under its purview.

Mr. Beltran said the company is complying with the law. He called Puff Bar’s ingredient change “a forced innovation,” and said his company did it to provide its consumers with “the product that they want.”

“The FDA has given us no choice,” Mr. Minas said. Puff Bar has helped many users quit traditional cigarettes, he said.

The FDA says it is now considering how to address Puff Bar and a number of other brands that state their products contain synthetic nicotine and therefore don’t fall under the agency’s oversight.

Puff Bar entered the U.S. market in 2019. At the time, it was owned by Cool Clouds Distribution Inc., a California company. In February 2020, to curb youth vaping, the FDA implemented new restrictions barring sweet and fruity flavors in reusable e-cigarettes such as Juul. Those restrictions didn’t apply to disposable devices like Puff Bar.

Puff Bar’s sales took off, according to Nielsen data. Lawmakers and public-health groups, concerned that young people were turning to Puff Bar, asked the FDA to intervene. Cool Clouds sold Puff Bar in early 2020 to the brand’s Chinese manufacturer, DS Technology Licensing LLC, because of FDA scrutiny and criticism that the vaporizers were attracting young people, the Journal earlier reported.

Messrs. Minas and Beltran became officers of Puff Bar in the spring of 2020, as CEO and CFO, respectively, when the brand was controlled by DS Technology, according to the two men and company filings. The young entrepreneurs had owned and run an online e-cigarette retailer called Eliquidstop LLC.

The two have been friends since childhood. Both grew up in middle-class families, Mr. Minas in Burbank, Calif., and Mr. Beltran in Los Angeles’s Glendale neighborhood.

Mr. Beltran attended a community college and worked part time as a security guard and as a customer service representative at the Los Angeles County Museum of Art. Mr. Minas attended community college, then completed a university degree in business. They started Eliquidstop when both were still in school.

In May 2020, around the time they started at Puff Bar, they bought a $1.7 million house together in the Glassell Park neighborhood of Los Angeles, public records show. On Instagram, Mr. Beltran has posted photos and videos of himself playing poker with Puff Bar-branded chips, going to nightclubs and driving luxury cars.

Messrs. Beltran and Minas declined to say how they came to hold their positions at Puff Bar. When they joined the company, sales of Puff Bar were soaring. So were Puff Bar counterfeits, according to Mr. Minas, Mr. Beltran and lawsuits filed by Puff Bar.

There were also intensifying calls for the FDA to take Puff Bar off the market. In June 2020, Rep. Raja Krishnamoorthi (D., Ill.) sent a letter to the agency alleging that Puff Bar was targeting minors. He pointed to a marketing email from Puff Bar depicting a pandemic-restricted “solo-spring break” and pitching Puff Bar as “the perfect escape from the back-to-back zoom calls, parental texts, and WFH stress.”

Mr. Minas said the spring-break ad was intended for adults. He and Mr. Beltran said they never targeted children or teens.

A schism in the summer of 2020 among Puff Bar’s shareholders led to the halt in sales in July and ultimately to a restructuring in which Mr. Minas and Mr. Beltran took full ownership of the brand, the two men said. Other shareholders had wanted to shut down Puff Bar entirely, Mr. Minas said.

“Nick and I still wanted to keep the brand going,” Mr. Beltran said. They declined to disclose details of the transaction, or the date the deal was completed. A lawyer for DS Technology didn’t respond to requests for comment.

After Puff Bar halted its sales in July 2020, counterfeits filled the void, Messrs. Minas and Beltran said. In February of this year, with the two men at the helm, Puff Bar resumed sales, telling customers its devices now contained “tobacco-free nicotine.”

In April, as sales of the new tobacco-free Puff Bars took off, Mr. Beltran posted a photo on Instagram of his new $280,000 Lamborghini Huracán alongside Mr. Minas’s Lamborghini Urus. Mr. Beltran and Mr. Minas said they have other sources of income in addition to Puff Bar.

Puff Bar is the top-selling disposable e-cigarette brand. Its sales totaled $156 million for the year ended Sept. 25 in retail stores tracked by Nielsen, according to Goldman Sachs analyst Bonnie Herzog. Mr. Beltran said he couldn’t say how much of those sales may have been counterfeit products.

In a federal survey released in September, 26% of high-school vapers said they used Puff Bar, which was followed in popularity by Reynolds American Inc.’s Vuse brand with 11%, Smok with 10% and Juul with 6%. Among middle-school e-cigarette users, 30% reported that their usual brand was Puff Bar.

Mr. Beltran and Mr. Minas said they had tried to grow and learn with the industry, and have tried to stay compliant.

“I always tell people, ‘Nothing is better than breathing fresh air’,” Mr. Beltran said. But, he added, “vaping isn’t going anywhere.”

WSJ : Elon Musk Is the World’s Richest Person. He Likes to Brag About It, Too.

Elon Musk Is the World’s Richest Person. He Likes to Brag About It, Too.
Mr. Musk replied to Amazon founder Jeff Bezos on Twitter with a silver medal emoji, an apparent reference to their wealth

Elon Musk is currently the world’s richest person. He doesn’t want Jeff Bezos to forget it.

The Tesla Inc. chief executive on Monday replied to a tweet from Mr. Bezos with an emoji showing a silver medal with the number 2 on it. Mr. Musk’s reply appeared to be a reference to how Mr. Bezos is the second-richest person in the world, behind Mr. Musk himself.

Mr. Musk’s tweet responded to one from Mr. Bezos, founder of Amazon.com Inc. , which referenced an article from 1999 that doubted the tech giant’s business model.

“Listen and be open, but don’t let anybody tell you who you are,” Mr. Bezos wrote in his tweet on Sunday night. “Today, Amazon is one of the world’s most successful companies and has revolutionized two entirely different industries.”

Mr. Musk’s estimated net worth was $222 billion as of Friday. It has more than doubled over the past year, according to the Bloomberg Billionaires Index. Mr. Bezos has an estimated net worth of $191 billion.

Messrs. Musk and Bezos didn’t immediately respond to requests for comment.

Earlier this year, Mr. Musk overtook Mr. Bezos as the world’s richest person, primarily driven by a sharp rise in the value of Tesla and his private rocket company SpaceX.

The two have gone back and forth as the world’s richest people in recent months, pitting two of the tech industry’s biggest rivals against one another. Establishing the exact net worth of the world’s wealthiest can be tricky, in part because many of their holdings are private.

Messrs. Musk and Bezos have previously taken jabs at one another. Mr. Musk questioned Amazon’s power over book publishing, calling it a monopoly. Mr. Bezos has joked about Mr. Musk’s interest in colonizing the planet Mars.

Amazon last year bought a self-driving-car startup that would compete with Tesla.

Messrs. Musk and Bezos also compete in space. Mr. Bezos owns the privately held rocket company Blue Origin LLC. In July, Mr. Bezos and three passengers reached the edge of space in the New Shepard, a flight that was part of the company’s broader mission to expand human space travel.

Blue Origin has faced criticism over safety and alleged instances of sexual harassment. U.S. aviation regulators said last month that they were reviewing a letter signed by a former employee at Mr. Bezos’ space company that claims the company gave priority to speed over safety on some of its rockets.

Mr. Bezos’s tweet on Sunday was in reference to a cover story from Barron’s that was published in 1999. Barron’s is owned by Dow Jones & Company, Inc., which also owns The Wall Street Journal.

WSJ : Merck Asks FDA to Authorize Promising Covid-19 Pill

Merck Asks FDA to Authorize Promising Covid-19 Pill
The drug could fill a big need for a pill that patients could easily take at home to help avoid hospitalization

Merck & Co. and partner Ridgeback Biotherapeutics LP said Monday they have filed an application asking U.S. health regulators to authorize their Covid-19 pill, the next step toward adding a long-sought drug for use at home.

The filing comes shortly after data from a late-stage study showed that the antiviral drug, molnupiravir, cut the risk of hospitalization or death by about 50% in high-risk people with mild to moderate Covid-19.

The U.S. Food and Drug Administration could clear the antiviral in the coming weeks and possibly in time for what some public-health experts say could be another virulent winter, especially among people who aren’t vaccinated.

“The extraordinary impact of this pandemic demands that we move with unprecedented urgency, and that is what our teams have done by submitting this application for molnupiravir to the FDA within 10 days of receiving the data,” Merck Chief Executive Robert Davis said.

Unlike Covid-19 vaccines and some other drugs for the disease that target the spike protein, molnupiravir works by targeting a part of the virus that helps it reproduce.

Doctors and patients have been waiting for an effective pill that would be easy to take at home, with the goal of preventing a case from turning severe and requiring hospitalization.

Antibody drugs, like one from Regeneron Pharmaceuticals Inc., have been authorized for use in Covid-19 patients before they are hospitalized. These drugs have shown to be more effective in clinical trials, but they require infusions and are tougher to administer.

The Merck-Ridgeback pill, if authorized, would be the first oral antiviral for Covid-19. A course of treatment is 40 pills, eight daily for five days, started within five days of showing symptoms.

The companies have said that the rate of side effects in study subjects who got molnupiravir and those who got a placebo was similar.

The findings were based on an early look at the data from a pivotal trial that is scheduled to finish in November.

Merck plans to manufacture 10 million courses of treatment by the end of the year and has already begun production. The Kenilworth, N.J.-based drugmaker has a $1.2 billion deal with the U.S. to provide 1.7 million courses of treatment, should regulators clear it for use.

Merck also has said it would make molnupiravir available globally and has licensing agreements with generic drugmakers, including Dr. Reddy’s Laboratories Ltd. and Sun Pharmaceutical Industries Ltd. , to ensure the drug’s availability to low-income countries.

The company also said it plans to peg pricing for molnupiravir to the wealth of the country buying it, based on World Bank criteria, to help expand access to low- and middle-income countries.

Remdesivir, from Gilead Sciences Inc., is the only FDA-approved antiviral but its use is restricted to hospitalized patients.

The companies announced molnupiravir’s positive results this month after an early look at the data found that it helped unvaccinated people who were at high risk of becoming sick. High risk was defined as having at least one characteristic associated with severe disease or death, such as old age, obesity or diabetes.

The emergency-use authorization requested by Merck and Ridgeback is different from a full approval, permitting manufacturers to distribute products during public-health emergencies based on the best available evidence at the time.

Ridgeback licensed molnupiravir from a not-for-profit biotech company owned by Emory University and last year joined with Merck on its development.

Other drugmakers are working on Covid-19 antivirals, including Roche Holding AG and partner Atea Pharmaceuticals Inc., as well as Pfizer Inc., though they haven’t yet announced any results from late-stage studies.

Separately, AstraZeneca PLC said Monday that an experimental antibody drug cocktail, dubbed AZD7442, showed between 50% and 67% efficacy versus a placebo in reducing the risk of severe disease or death in study subjects injected within the first week after symptoms showed. Most of the subjects were deemed at high risk of severe Covid-19.

The results were preliminary, and full trial data hasn’t been independently reviewed or published.

Last week, AstraZeneca asked the FDA to authorize use of the same antibody combination for a different purpose—as a preventative shot against symptomatic Covid-19, like a vaccine.

FT : Tesla: ‘full self-driving’ is self-defeating hype

Tesla: ‘full self-driving’ is self-defeating hype
Autopilot can steer, brake and accelerate — but real autonomy remains a work in progress

Driverless cars do not exist yet. Try telling that to some Tesla owners. They apparently switch on the Autopilot function when they want to move to the back seat or take a nap. Judging from scary camera phone footage posted on the internet, they take little notice of Tesla’s in-car safety warnings.

Tesla’s Autopilot can steer, brake and accelerate. But it still requires human supervision. Real autonomy remains a work in progress. That was reflected in a tweet on Saturday from founder Elon Musk who said the US electric vehicle group was delaying the rollout of the latest version of its “Full Self-Driving” software.

Tesla hopes a small number of Tesla drivers with the highest safety scores will test the new software. But even this will not meet the top Level 5 scale of autonomy that means a car can go anywhere in any conditions. The head of the US National Transportation Safety Board is right to call Tesla’s use of the term “full self-driving” misleading.

Ride-hailing app Lyft has operated a fleet of “autonomous” cars in Los Angeles since 2018. The caveat is that there is always someone in the driving seat ready to grab the wheel and take control.

Fully autonomous cars could save lives if they worked well. More than 1.3m people are killed each year in motor accidents, many resulting from driver errors. But accidents and abuses are shaking public confidence. Crashes are more likely if user features bear names that overstate their capabilities.

Five years ago, Intel predicted that self-driving vehicles would create a $7tn industry by 2050. But such forecasts have been routinely over-optimistic. The scale of investment required has led to recent consolidation in the industry. Last year, Uber sold its self-driving cars unit to Aurora Technologies, keeping a 26 per cent stake.

Tesla wants to dominate vehicle autonomy before a rival can. It is one reason its stock trades at 120 times forecast earnings. But that is no excuse for using language that fosters misplaced confidence in drivers who ignore the small print. It is time for Tesla to junk terms such as “autopilot” and “full self-driving”.