REUTERS: Corporate bond defaults in China have reached a new high this year, indicating tightening credit conditions and a rising unwillingness by regional governments to bail out troubled state-owned enterprises. According to Fitch Ratings, Chinese enterprises’ bond defaults totaled 62.59 billion yuan (US$9.67 billion) in the first half of 2021, the largest amount ever.
Some investors are concerned that the termination of implicit government guarantees on SOE debt will cause market instability because of the rising number of defaults by state-owned companies (SOEs).
This year, China’s bond defaults reached an all-time high. https://graphics.reuters.com/CHINA-DEFAULTS/xlbvgqmorvq/chart eikon.jpg According to the data, 25 companies defaulted on bond payments in the first half of 2021, compared to just 19 in the same period last year. In China, the number of defaulted issuers is https://graphics.reuters.com/CHINA-DEFAULTS/jbyprzbrzpe/chart eikon.jpg.
More over half of China’s defaults, totaling 36.65 billion yuan, were caused by state-owned enterprises (SOEs).
Concerns over SOEs’ ability to service their debts aroused worldwide concern in April after China Huarong Asset Management missed a March 31 deadline for disclosing its 2020 profits.
This year, China’s SOEs are leading defaults https://graphics.reuters.com/CHINA-DEFAULTS/ygdpzzjwgpw/chart eikon.jpg
Huarong has made all of its bond payments on time, most notably settling a maturing US$400 million bond on Wednesday.
More SOE defaults, according to analysts, may not always spell doom for the market.
“SOE bankruptcies could be a gift in disguise,” said Chi Lo, senior economist at BNP Paribas Asset Management. “They would force state companies to adhere to strict budget limitations and practice more credit discipline, both of which have been blamed for excessive investment.”
“Since 2017, Beijing has been signaling a gradual pullback from government guarantees on the liabilities of state-owned enterprises… They have, however, emphasized the importance of dissipating the bond default risk in a systematic manner. ” Strong regional SOEs with deteriorating liquidity profiles likely continue to face increasing bond-repayment pressure as major maturities loom in the second half of the year, according to Shuncheng Zhang, a Fitch analyst in Shanghai. “However, a spike in defaults is unlikely because central authorities are advising distressed SOEs to establish repayment plans ahead of time,” he said. (One US dollar equals 6.4755 Chinese yuan) (Bengaluru-based Patturaja Murugaboopathy and Shanghai-based Andrew Galbraith contributed reporting; Gaurav Dogra contributed additional reporting; Vidya Ranganathan and Shri Navaratnam edited the piece.)/n
