Ex-Goldman banker bets $245M on distressed China property debt

Hong Kong’s Arkkan Capital raising more money for fund next year

Arkkan Capital’s Jason Brown (iStock)
Arkkan Capital’s Jason Brown (iStock)

It was only a matter of time: Months after Chinese property markets imploded, a former Goldman Sachs banker is making a big bet on mainland real estate.

Jason Brown, an ex-head of the Goldman Sachs Special Situations Group, has raised $245 million for his Hong Kong-based Arkkan Capital to target stressed and distressed Chinese property, Bloomberg reported. It plans to raise more in the first half of 2022.

China’s real estate developers are heavily overleveraged, including Evergrande Group, the world’s most indebted real estate firm. As of October, Chinese developers had about $5.24 trillion of outstanding debt.

A looming credit crisis prompted government regulators to limit loans and financing to developers earlier this year. The government also restricted loans to homebuyers.

Brown is wagering that the Chinese government will ease its regulations to prevent a liquidity crisis from pulling down the wider economy. Some signs have emerged that it’s already starting to happen.

“Current pricing implies historically high default rates and suggests a systemic crisis which policy makers are unlikely to permit given the economic significance of the real estate sector,” Brown told Bloomberg. “The squeeze on real estate funding is the deliberate result of a central policy decision that we expect to adjust should there be any systemic risk implications.”

T. Rowe Price Group Inc., Allianz Global Investors, and Goldman Sachs are also making bets on property junk bonds making a comeback.
The sector may be headed for its roughest patch yet, however. The price of new homes and the number of sales in China’s largest cities overall started to decline in the fall.

Swiss Bank UBS is projecting that property sales and starts could fall by 20 percent or more through next year as well, according to Forbes. That could slow overall economic growth in the country to 4 percent or less.

[Bloomberg] — Dennis Lynch