Deflation Stalking: China Coal SOE Defaults

The stimulus that was lifting all boats is over.

Caixin: Default by Henan Coal Mining Company Sends Tremors Across China

Yongcheng Coal and Electricity Holding Group Co. Ltd., which just last month got the highest possible rating from a domestic credit rating company, failed to repay an ultra-short-term bond that matured Tuesday, according to a statement posted by the Shanghai Clearing House.

The default set off a chain reaction affecting other coal mining companies and local government financing vehicles in other provinces. Coal mining enterprises in Shanxi and Hebei provinces either canceled bond issuance plans or slashed fundraising targets. Traded coal bonds plunged across China.

“The wind has changed direction,” a senior bond market participant said. Under the pressure of debt replacement, many local governments may have more incentive to let debt-ridden LGFVs or state-owned enterprises go bankrupt and restructure, the market participant said.

SCMP: Parent of BMW’s Chinese partner defaults on a bond, as declining car sales pile on to the debt woes of China’s corporate borrowers

Huachen Automotive Group Holding, the state-owned parent of BMW‘s main Chinese joint-venture partner, has defaulted on a bond payment, heightening fears about the debt-ridden carmaker’s fate.

The company was not able to repay a 1 billion yuan (US$149.1 million) corporate bond paying 5.3 per cent in annual coupon, which it sold via a private placement three years ago. The group is “working hard to raise money and discussing with investors to iron out the issue,” according to a Shanghai Stock Exchange filing.

Huachen is the parent of Hong Kong-listed Brilliance China Automotive Holdings, which owns 25 per cent of a venture with BMW, making Series 1, 3 and 5 passenger sedans in the Liaoning provincial capital of Shenyang in north-eastern China.

Sina: Haitong Securites Report 海通固收：永煤违约冲击市场预期 担忧情绪扩散

Credit bonds: Yongmei's default impacts market expectations. 1 ) Yongmei’s breach of contract and the spread of concerns. Risks in the credit bond market have occurred frequently recently. On November 10 , 20 Yongmei’s SCP003 defaulted on this week , which had a particularly strong impact on the market, not only because of its status as a state-owned enterprise, but also because the company’s own assets were not very poor. The successful issuance of mid-term ticket financing, under the optimistic signal, this default exceeded market expectations. In the later stages of the market, more and more interpretations point to insufficient willingness to pay, and the willingness to pay is "unanalyzable", which leads to the spread of panic on a large scale. Similar companies in the region and state-owned enterprises in other regions that are themselves in public opinion. The secondary market price of related bonds has fallen sharply. The fermentation of credit risk has also led to a reduction in market risk appetite, and the warehousing standards have become strict. Institutions will investigate and tighten the warehousing standards. Low-qualified bonds may It was sold off, further deepening credit stratification. With the spread of market panic, credit risk may also evolve into liquidity risk. First, the pledged bond standard will increase, making it more difficult for pledge financing to affect liquidity. Second, thunderstorms lead to increased risk aversion and product redemption pressure. increase. 2 ) Where does credit bond investment go? 11 Yue 13 Hinaga coal interest payment will be 3238 . 52Ten thousand yuan will be paid to the receivable fixed-income product interest payment fund account, the principal is still being raised, whether the default bonds of Yongmei Coal can be resolved, and the duration of market sentiment remains uncertain. Near the end of the year, corporate funding pressure is relatively high, and the amount of credit debt maturity is still large in the near future, and the primary financing environment is not optimistic, and the overall risk is heating up. It is not necessary to "buy the bottom" too early. Looking to the future, the weakening of beliefs in marginal state-owned enterprises and the gradual liquidation of zombie enterprises are still continuing. Investment should avoid blind labelling and return to subject credit research. Since the credit incidents of state-owned enterprises this year are mainly concentrated in industrial bonds, urban investment has increasingly become the mainstream choice. However, as the fence of belief is pulled out, urban investment debt investment recommendations should also pay attention to avoiding tail risks, inter-regional or even inter-regional platforms. The differentiation will be more obvious.