Chinese companies ’dollar bonds are successful as Beijing tightens credit

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

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

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 Chinese companies in international markets with more than $ 100 billion in debt in international markets this year, global investors have a huge advantage.

In the first year, Default by Chinese companies A record $ 7.3 billion offshore debt and a $ 22.7 billion value in renminbi-denominated bonds. 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 in debt and is restructuring.

China Fortune declined to comment.

These pressures are like Beijing he wants to balance a strong economic recovery with a high level of indebtedness of Covid-19. “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 choice of priorities has also forced international investors to re-evaluate how much the economically extended companies will receive from the Chinese government. Foreign investors have long taken this for granted Beijing would rescue it state-sponsored groups.

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

Huarong bonds themselves 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 holders of offshore bonds, especially if land debt restructuring takes precedence.

“Everything that happens on land will clearly guide 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 offshore graduates need much more time than they normally prefer.

The case of China Fortune has been complicated by the presence of powerful land investors. Ping An, one of the largest insurance companies in the world, is an investor and member of the creditors ’committee of the property group. Other members of the committee include China’s national banking and insurance regulator and a government that will charge money from Hebei province, failing to pay China’s fortune for working on infrastructure projects led to its restoration.

Offshore bonds with China’s Fortune debts collectively more than $ 1.5 billion have made up their board.

Ping An was hit with $ 2.8 billion in success in China Fortune due to its impact on debt and capital in the first quarter. An analyst at a global rating agency said that as a result, regulators could also reconsider how much exposure they should carry to China’s insurance premiums.

This would drain developers of more liquidity, which is the majority of the issue of high-yield Asian bonds, according to S&P.

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, because of Beijing’s reluctance to bail out, the default rate in recent years has likely to have persisted in recent years.

However, Lee said the government will take steps to limit losses to offshore bondholders, as 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.”