Daily Management Review

Default on Chinese corporate bonds grows to record $ 4.4 bln


The private placement market is a key source of financing for small companies in China.

This year, more and more Chinese companies default on private bonds, Bloomberg reports, explaining the process by the fact that the economic slowdown is putting serious pressure on small companies that seek to first pay off public obligations.

As a result, by August this year, national issuers had already missed payments on private bonds for a record 31.8 billion yuan ($ 4.4 billion). Meanwhile, for the whole of 2017 and 2018 combined, the default volume, according to China Chengxin International Credit Rating Co., amounted to 26.7 billion yuan.

Bloomberg reports that the outstanding number of publicly issued bonds is approximately three times the number of private bonds. Nevertheless, the private placement market is a key source of financing for small non-state companies in China and local government financing mechanisms, since the deals are made with a small group of qualified institutional investors, which, in theory, protects companies from market volatility.

Analysts note that there are already signs that defaults are reducing demand for such obligations. In the four months leading up to July, private corporate bond issuance in China has declined. This was the longest fall in two years. In August, the volume rose to 160 billion yuan.

source: bloomberg.com