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Chinese companies ’dollar bonds are successful as Beijing tightens credit

Chinese companies ’dollar bonds are successful as Beijing tightens credit

When China Fortune Land Development lost $ 530 million in bond payments in February, the property developer was in no hurry to tell investors.

“They never said‘ we even defaulted, ’” recalled one of the company’s offshore investors, who only found out through a third-party trustee. they said.

Chinese Fortune, which builds industrial parks and owes another $ 4 billion, is one of the largest companies in the country under pressure to pay back as Beijing tightens credit conditions. With more than $ 100 billion in debt borrowed from international companies in international markets this year, global investors are facing global investors.

In the first year, It was preferred by Chinese companies A record $ 7.3 billion offshore debt and a $ 22.7 billion renminbi-denominated bond. In 2021, they lost nearly $ 3.3 billion in bond payments, according to the rating agency Fitch, or what was expected throughout the year before the pandemic.

It is among the other names that investors are concerned about Founding Group of Peking University, a state-backed conglomerate that owes billions of dollars offshore and is restructuring.

China Fortune declined to comment.

These pressures are like Beijing he wants to balance a strong economic recovery as a result of Covid-19, with high levels of indebtedness. “It is quite clear that the Chinese government wants a more rational credit market,” said Jimmy Lim, CEO of Singapore hedge fund Modular Asset Management.

The default option has also forced international investors to re-evaluate how much the economically extended companies will receive from the Chinese government. Foreign investors took that long ago Beijing would rescue it state-sponsored groups.

Concerns about government support have sparked the situation in China’s Huarong Asset Management, the country’s largest debt management company. He owes $ 22 billion in debt denominated in dollars. The price of some offshore bonds issued by the group, the majority owned by the Ministry of Finance, fell to 57 cents on the dollar last month after delaying the publication of its 2020 economic results. It was the chair of the company executed in January for financial crimes.

The same Huarong bonds are trading at 66 cents a dollar.

According to Refinitiv, Chinese issuers this year will face the largest dollar bond maturity ever this year, at $ 118 billion. But that’s even lower at Rmb7.8tn ($ 1.2 million) of land debt maturing in 2021. The latter figures could have major consequences for offshore bondholders, especially if land debt restructuring takes precedence.

“Everything that happens on land will clearly drive what happens offshore,” said Soo Cheon Lee, founder and head of investment at SC Lowy, a serious Hong Kong-based credit manager. In the case of China Fortune, he added, “the boys on earth are also struggling to find out what’s going on.”

The restructuring process in China can be slow. More than a fifth of the defaulting companies since the beginning of 2018 have not completed the restructuring, said Shuncheng Zhang Fitch, associate director of corporate research at China.

Land defaults are usually resolved through Chinese courts, Zhang said, which means that offshore graduates need much more time than they normally prefer.

The case of China Fortune has been complicated by the presence of strong land investors. Ping An, one of the largest insurance companies in the world, is an investor and a member of the creditors ’board of the property group. Other members of the commission include China’s national banking and insurance regulator and a government that has no money in Hebei province, which failed to pay China a fortune for working on infrastructure projects, which affected its default.

Offshore bonds with a collective debt of more than $ 1.5 billion in China’s Fortune debt have made up their board.

Ping An hit $ 2.8 billion in success with China Fortune in its first quarter through debt and equity. An analyst at a global rating agency said that as a result, regulators may once again consider how much exposure they can take to Chinese property insurance.

According to S&P, developers would drain more liquidity, as most of the year’s high-yield Asian bond issues.

SC Lowy’s Lee said the recent rise in lost bond payments is “ironic because China’s economic data is wonderful”. However great economic growth, he said, Beijing’s reluctance to bail out meant that the default of recent years would likely last in recent years.

However, Lee said the government will take steps to limit the losses of offshore bondholders because global investors are an important source of dollar funding for Chinese companies.

China, he said, “can’t squeeze offshore guys, because China Inc. also needs a lot of offshore financing.”

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