China Great Wall International’s bond sees record slump as investors worry about a Huarong-like crisis
- China Great Wall International’s 3.95 per cent US$400 million perpetual bond fell 7.8 per cent this week, the biggest decline on record
- Investors are worried about the health of China’s biggest bad loan managers amid the property market slump and economic headwinds
Chinese bad debt managers recorded big slumps in their dollar bonds this week amid rising concerns over long term government support for the market.
China Great Wall International’s 3.95 per cent US$400 million perpetual bond fell 7.4 cents on the dollar this week, a drop of 7.8 per cent, the biggest decline on record after Moody’s Investors Service placed the company and its parent Great Wall Assets Management Company (AMC) under review for downgrade.
The slump reflects fragile investor confidence over the financial health of China’s biggest bad loan managers, which have been tasked with helping to tackle long-term credit risks at large companies and in the country’s vast property market.
The immediate trigger for declines in China Great Wall International’s bond price was its parent’s failure to release its 2021 annual results twice – missing the original deadline on April 30 and a second deadline on June 30 because the assessment of a certain, unidentified operating project was not finalised.
The incident has sent ripples across the sector, dragging down bond prices of the indirect subsidiary of China Huarong Asset Management, the biggest bad debt manager in China and whose debt problems roiled the world’s second-largest credit market last year.
Great Wall failure’s to meet the earnings deadline has reminded investors of a similar incident at Huarong when it delayed its earnings release before major problems came to light, which prompted a government bailout.
Analysts said the bad loan managers have been hit by their exposure to China’s struggling property market, as their debt restructuring operations usually entail providing collateral or guarantees to affected companies.
“A series of risk events and the big adjustment in the property market have posed challenges to the AMCs,” said David Jinhua Yin, senior credit officer at Moody’s, adding that broader economic headwinds in China could continue to affect their asset quality and profitability.
China’s highly-leveraged property companies are still subject to debt payment problems, which were exacerbated when China Evergrande’s US$300 billion debt crisis came to the fore in August last year. Covid-19 lockdowns and restrictions, meanwhile, are still hammering sales in the real estate sector.
The two AMCs, together with China Cinda Asset Management and China Orient Asset Management, are known as the Big Four AMCs in the country. They were originally established to buy up bad loans from China’s biggest lenders in the wake of financial crises in the 1990s.
Huarong Finance 2019’s 4.25 per cent US$250 million perpetual note fell by 9.8 cents on the dollar, the biggest drop since the week starting April 12, 2021. This week’s 10.8 per cent decline was the biggest since the week of May 17, 2021. The bond was indicated at 80.953 cents on the dollar on Friday, up from 75.759 cents on the dollar on Thursday.
“The move has definitely been exacerbated by the current weak market sentiment and poor trading liquidity,” said Nicholas Yap, head of Asia credit desk analysts at Nomura.
“Despite the government’s bailout of Huarong last year, there are still question marks on the level of government support for asset management companies in the longer term,” he said.