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Can you elaborate on "nobody books accounting losses!"? In particular, even if there's no single party with control as per IFRS, each entity would have to still recognize the financial instrument, either at FV through P&L or OCI, just like Ant did in its financials. So in the even of default, each party would have to write-off its smaller share of the ABSs, which sounds more like a spreading of losses rather than hiding.

While I agree that these instruments don't appear on a balances sheet for an "easy" pick up for further analysis, Ant does disclose value of those instruments in notes to its financials, and as such anyone can find it himself, just like you did in the "back-of-the-envelope" analysis.

Another unclear point for me is why would this be a "Lehman brothers" situation? If I recall correctly, in 2008 subprime mortgage defaults were a triggering event to a bomb that was overleverage through credit default swaps. Maybe it is a case in China currently, but it was not discussed in the article yet a 2008 crisis labels were attached.

Overall, I'm getting "there was an attempt" vibe from this, at least in its current form. A statement with the picture gives away desire for overdramatism. There's definitely a beef between Ma and Xi, but I don't think Ma wants China to collapse.

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Hey someone else actually pointed out the same concern that you did, and it turns out I was wrong about the Enron comparison. So I took it out. Thanks for helping me see around the corner.

But the Lehman analogy still holds, as I explained in my previous reply. So the original narrative behind why Xi might have decided to pull the IPO still stands. Cheerio!

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In the event of a default, none of the <5% USE shareholders need to recognize the full extent of the loan losses on their balance sheet. They simply write down their equity investment in the USEs to zero, and are prevented from recovering any of those amounts unless those losses return back to positive territory. But if you don't intend to recover those losses anyway, then it doesn't matter - you don't need to recognize negative values beyond your equity investment in the USEs, just like you wouldn't recognize negative values on a stock investment if the underlying company has negative net assets. Hence if the ABS's go to zero, the loan losses don't fall on anyone's books except the USEs, which are not consolidated anyway.

It's similar to a "Lehman" situation due to the middleman take-a-fee business model (as opposed to the traditional hold-credit-risk business model), plus the potential systemic risks to the wider economy involved. You're right in that it's not a 1:1 comparison, but it's close enough that most people will be able to draw the connection.

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