Donald Trump once called himself the "king of debt.'' Hui Ka Yan, China's richest property mogul, has a much stronger claim to the throne.
No one has gotten wealthier on the back of a corporate borrowing binge than Hui. His junk-rated China Evergrande Group is not only the nation's most indebted developer, it also has the highest leverage among companies underlying the world's largest fortunes.
Hui, who has a net worth of US$35 billion ($52b), is the 26th richest person in the Bloomberg Billionaires Index. Everyone above him for whom data is publicly available -- from Amazon.com's Jeff Bezos to Las Vegas Sands' Sheldon Adelson -- has grown their fortune via companies with far more conservative balance sheets.
In many ways, Hui is more emblematic of recent trends in global business than his richer peers. Worldwide corporate debt has swelled by 26 per cent over the past decade to US$132 trillion as companies have taken advantage of historically low interest rates to fund their growth. Like Evergrande, many have also used borrowed cash to repurchase shares and boost dividends.
"They are keen to use debt to finance expansion -- and if they want dividends and share buybacks, they will use debt to finance these too," said Nigel Stevenson, an analyst at GMT Research in Hong Kong.
As investors debate how long the good times will last, Evergrande has emerged as an extreme example of the tug-of-war between bulls and bears. The company's stock, the main source of Hui's wealth, has trounced the market in recent years while at the same time becoming a favorite target of short sellers.
Evergrande this week increased its year-to-date issuance of dollar bonds to $6.7b -- the most in Asia excluding Japan -- even as credit analysts sounded alarms about the company's massive debt burden.
Hui, who grew up poor in China's central Henan province and quit his job at a state-owned steel company in 1992 to try his luck in real estate, has so far managed to push the limits of investors' tolerance for leverage without triggering a loss of confidence.
Evergrande's stock has jumped more than 200 per cent over the past two years as the company repurchased millions of shares and distributed a $2.2b dividend in late 2018. The developer, which didn't reply to a request for comment, sold $1b of bonds on Monday at yields around 10 per cent -- high for a company of its size but still well below levels that signal financial stress.
"Investor demand for the company's bonds has been strong given the attractive yields," said Dhiraj Bajaj, a portfolio manager at Lombard Odier in Singapore who has invested in Evergrande's dollar notes.
Hui, who founded Evergrande in 1996 and turned it into China's biggest developer by revenue, has profited from the company's borrowing spree in more ways than one. The 60-year-old invested $1b of his own money in some of the firm's bonds in October, an unusual move aimed at calming market jitters over the size of Evergrande's debt burden. Hui has gained an estimated 16 per cent on his investment as sentiment improved.
Optimists point to Evergrande's repeated pledges to reduce leverage and say the company's massive land holdings provide sufficient backing for its debt. The developer also stands to benefit as China's housing market and economy show signs of recovery. Evergrande's core profit, adjusted for property revaluations, foreign-exchange fluctuations and the fair value of financial assets, rose a faster-than-estimated 93 per cent in 2018.
The company's mountain of debt remains a significant risk. Evergrande's net liabilities have quadrupled over the past five years to about $78b, while its financial leverage is more than twice as high as the industry average, according to data compiled by Bloomberg. The company's frequent bond issuance this year could hinder its efforts to deleverage, S&P Global Ratings said in a note last week.
"The market is beginning to question Evergrande's commitment," said Paul Lukaszewski, head of Asian corporate debt and emerging-market credit research at Aberdeen Standard Investments.
Meanwhile, short interest in Evergrande shares amounts to 18 percent of the company's free float, data compiled by IHS Markit and Bloomberg show. That's down from 27 per cent in September, but it's still one of the highest levels among large-cap stocks globally.
Evergrande skeptics say Hui is burning through too much cash as he expands into a plethora of new businesses. He has branched into everything from hospitals to artificial intelligence to soccer in recent years, and has vowed to take on Tesla Inc. to become the world's biggest maker of electric cars.
The ventures have aligned with the priorities of China's ruling Communist Party, but it's far from clear that they'll be successful. If Asia's largest economy sputters or credit markets tighten, Hui's debt-fueled expansion could come back to bite him.
"There is a fair bit of uncertainty regarding the diversification into new businesses such as electric vehicles," said Luther Chai, an analyst at the CreditSights Singapore. "These investments require huge amounts of upfront capital and will take time to turn profitable, if they succeed."