China’s private firms default on US$2 billion bond repayments as Beijing’s deleveraging efforts bite
A shortage of bank funding and an increasingly competitive business environment has left companies fighting to survive, analysts say
China’s private sector firms are facing a debt crisis amid falling profits and rising financing costs, with the value of bond defaults in the sector rising by more than a third in the first four months of the year, according to industry watchers.
More than 10 companies, several of them listed, from a variety of industries have defaulted on 15 bonds worth more than 12.8 billion yuan (US$2 billion), according to figures from China Central Depository and Clearing Company, which manages and promotes the sector.
The spike in defaults has unsettled regulators that have been keen to prevent systemic risks as they seek to reduce national debt levels.
“No matter what industry they are in, what these companies have in common is that they are finding it much harder than state-owned enterprises to get financing,” Qin Han, chief fixed income analyst at Guotai Junan Securities, wrote in a note.
“Deteriorating business could lead banks to withdraw loans and cause a cash shortage. Eventually, it will lead to more defaults. State-owned enterprises [in contrast] can rely on other sources of borrowing to sustain them, even if their businesses are feeling the strain,” he said.