2021-04-13

China Bad Asset Manager Is a Bad Asset

How can a company go bankrupt when everyone who goes bankrupt, gets bailed out and it buys the assets of those bankrupt companies?

Zerohedge: "This Is A Fatal Event": China's Bond Market Hammered After Huarong Bankruptcy Rumors

As Bloomberg reports, growing panic over the financial health of one of China’s largest bad-debt managers spilled into the broader market, as traders circulated a Caixin report that openly considered the worst-case scenario for the company. Specifically, in a commentary dated Monday, Ling Huawei, managing editor of Caixin Media and Caixin Weekly, discussed the possibility of a China Huarong bankruptcy.

Not helping was the latest pileup by rating agencies, with both Moody’s and Fitch saying Tuesday they will review their ratings of Huarong - an investment grade credit for now - for a potential downgrade, following a similar announcement from rival S&P Global Ratings last week.

...“Market speculation of a restructuring with haircuts for Huarong International bondholders is heavily damaging investor sentiment,” said Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore. “The continued silence of Chinese authorities on the predicament of a strategic state-owned institution as large as Huarong is also worrisome, as investors had anticipated at least a modicum of reassurance.”

Sure enough, in typical Chinese style contagion, the Huargon selloff spread to other high-yield Chinese dollar notes on Tuesday, with some property bonds falling by a record. Asia’s investment-grade dollar debt spreads widened as much as 3 basis points, while a gauge of Asia credit risk widened for a seventh straight day, set for the longest rising streak since 2018.

This has neve led to the type of systemic risk that is possible within China's expansive credit bubble, thus what is more interesting to ponder is...why now? Why would anyone go bankrupt in the middle of a rising tide of credit...unless the tide is already going out?

Of note, the chart on Huarong stock doesn't look as bad as the news suggests, in fact it looks like the opposite given the context.

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