Evergrande’s 99% bond wipeout hands hedge funds a harsh lesson on China

From afar, China Evergrande Group had all the makings of a killer distressed-debt trade: $19 billion in defaulted offshore bonds; $242 billion in assets; and a government that appeared determined to prop up the country's faltering property market. So US and European hedge funds piled into the debt, envisioning big payouts to juice their returns. What they got instead over the course of the next two years, is a harsh lesson in the dangers of trying to bargain with the Communist Party. The talks are now dead — a Hong Kong court has ordered Evergrande's liquidation, and the bonds are…