At a very high level, YZJFH and Chinese state-owned banks have similar underlying exposure to Chinese real estate (around 30%). So if the Chinese banks are trading at less than 0.5x book and paying 8% yields, it is hard to expect YZJFH to trade at signficantly higher valuations.
Note that the Chinese property crisis has spread to even state-owned developers like Greenland and Sino-Ocean. If a state-owned developer cannot get funding from a state-owned bank, obviously there is a big problem, equivalent to Capitaland being unable to borrow money from DBS.
Bond Supermart recently published a page showing the bid prices of 30 Chinese developers' bonds:
https://www.bondsupermart.com/bsm/articl...CMS_255744
Note the bimodal distribution (2 broad groups) - less than 20% of par, and 47-98% of par. Basically if you are in distress, the markdown is immediate and severe. The prices are definitely out of date for Country Garden, as they've since defaulted - the bonds now trade below 10 cents on the dollar.
For YZJFH to mark their book down only 8% means either they only had exposure to the very strongest issuers like Vanke/COLI/CR Land, or they are using "mark to model" accounting. For 1H23 they reported $142m of interest income on a book of $2.6bn, this would be 10.9% annualized interest rate. For all of 2022 they reported $332m of interest income on a book of $2.6bn, or a yield of 12.8%.
Average cost of debt as per their respective 2022 annual reports:
COLI: 3.57%
China Vanke: 3.88%
CR Land: 3.75%
The simple conclusion here is that YZJFH does not hold super-safe debt issued by the likes of COLI, China Vanke or CR Land. In fact, most likely its debt portfolio is dominated by sub-prime borrowers. Therefore there is a high chance that its debt investments will suffer meaningful defaults. Investors should assume that debt recoveries in the property sector will be low, as the Chinese government will prioritize completion of units for homeowners, then payments to contractors, before worrying about institutional investors, whether lenders or shareholders.
If we conservatively assume 50% of the debt portfolio defaults with no recovery and the rest is money good, then the debt portfolio is worth $1.3bn. Group book value drops to 2/3 of the reported value i.e. 70c instead of $1.05. Is 0.5x adjusted book value a safe price? The investor must decide for himself.
Of course, 70% of the debt portfolio is not directly linked to property, so it may not be fair to tar it all with the same brush. But common sense suggests that 8% markdown is too little, given that property permeates all of China's economy and is estimated to account for 70% of household wealth.
YMMV.