China debt: bond problems could still resurface in 2020 after defaults amid coronavirus lower than expected
- Bond defaults have dropped 26 per cent from a year earlier, but a larger increase was expected due to the economic damage caused by the coronavirus
- Value of defaults rose almost 40 per cent to 64 billion yuan (US$9 billion), although more than half came from one case involving the state-owned Founder Group
Problems in China’s corporate bond market could still resurface later in the year after the level of defaults did not surge as high as expected during the economic downturn caused by the coronavirus outbreak thanks to ample credit and relaxed issuance requirements.
The world’s second largest bond market after the United States has recorded 71 default cases so far this year, according to financial database Wind, 26 per cent lower than a year earlier.
The value of missed repayments on corporate bonds rose almost 40 per cent to 64 billion yuan (US$9 billion), although more than half came from one high-profile case involving the state-owned Founder Group. The Beijing-based technology firm, established by China’s top-tier Peking University, has so far defaulted on 36 billion yuan of bond payments this year in the process of restructuring its debt.
Among private bond issuers, the total value of defaults has dropped 46 per cent to 23 billion yuan so far this year.
In the wake of the coronavirus pandemic, the small increase in the default risk has surprised some analysts, since the sharp drop in profits of many companies in the first quarter of 2020 would suggest they would run into trouble paying off their debt. Instead, defaults have not increased significantly, and new bond issuance have actually increased.