No Worries, China's Latest Default Wave "Normal"

Sina: 债市违约常态化 整体风险可控
In recent days, the credit risk of the bond market has accelerated, and some private listed companies or groups holding listed companies have suffered successive bond defaults, triggering market concerns. The industry believes that these debt defaults reflect the financial and government debt under the dual supervision of the background, some companies have their own operational and financial control capabilities problems, the overall risk of the bond market is still controllable.
CICC believes that this “default wave” is not an accident. The current round of debt default acceleration has been driven by the tightening of the financing environment at the end of last year. In particular, after the introduction of the new asset management regulations, the non-standard assets of banks were quickly returned to the local government and the capital chain with private enterprises has brought a lot of pressure. At the same time, a number of deleveraging macroeconomic policies have been superimposed, including slowdown in fiscal spending, tightening of local government financing and infrastructure investment supervision, tighter credit limits on the table, and so on, which has also exacerbated the pressure on corporate finance.
Companies are pouring into the bond market to repay maturing debt.
Wind statistics show that since the beginning of this year, the issuance scale of listed companies’ credit bonds has reached 446.532 billion yuan, compared with only 97.941 billion yuan in the same period of last year, an increase of 355.92%. Behind the dramatic increase, listed companies have further increased their debt repayment pressure. Up to now, the stock of credits of listed A-share listed companies has reached 2.8188 trillion yuan. Among them, the scale of debt service during the year will reach 543.661 billion yuan. Even after deducting the short-term financing issued during the year, the scale of debt repayment was still 366.61 billion yuan.

From the perspective of industry distribution, according to the breakdown of industry segments, real estate has the highest scale of debt issuance, which has reached 86.49 billion yuan, followed by the electric energy industry, which has reached 83.19 billion yuan, and the mining industry has also issued debts of 21.5 billion yuan. yuan. The scale of bond issuance accounts for 42.81% of the total debt issued by listed companies.
No worries though:
Although bond defaults occur from time to time, people in the industry generally believe that the credit risk of the bond market is still entirely controllable. Li Xunlei stressed that from the default amount, the proportion of credit defaults is less than 1%, which is only about 0.4% and 0.5%, which is far below the current level of bank bad debts and is within a normal range. Li Xunlei said that from the perspective of financial supervision, it is necessary to break the rigid payment, so it is not ruled out that there are still many companies that breach the contract. He pointed out that there should be a sense of prevention of systemic risks and good guidance.

China Money Network: Chinese Corporate Bond Defaults Rise With 19 Failures So Far This Year
As China Inc. deleverages, corporate bond defaults are on the rise this year. As of May 7, a total of 19 domestic corporate bonds have defaulted, compared to 49 bond defaults for all of 2017, according to Chinese data provider Wind.

The amount of Chinese domestic corporate bond defaults remains tiny when compared to the total Chinese bond market. The 19 bond defaults this year involved 10 issuing companies with combined face value of just over RMB13 billion (US$2 billion).
SCMP: China’s private firms default on US$2 billion bond repayments as Beijing’s deleveraging efforts bite
No matter what industry they are in, what these companies have in common is that they are finding it much harder than state-owned enterprises to get financing,” Qin Han, chief fixed income analyst at Guotai Junan Securities, wrote in a note.

“Deteriorating business could lead banks to withdraw loans and cause a cash shortage. Eventually, it will lead to more defaults. State-owned enterprises [in contrast] can rely on other sources of borrowing to sustain them, even if their businesses are feeling the strain,” he said.

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