In the first quarter of this year, the amount of domestic and foreign debt defaults of mainland enterprises reached 15.1 billion U.S. dollars.
In the first quarter of this year, the amount of domestic and foreign debt defaults of mainland enterprises reached 15.1 billion U.S. dollars (about 98.9 billion yuan), of which the scale of defaults of real estate enterprises accounted for 27%, ranking first, and the electronics and aviation industries are also areas with large defaults.
Bloomberg published the above default data on April 8, and the total scale of defaults hit a new quarterly high since Bloomberg statistics in 2014.
In addition, in the first quarter of this year, mainland enterprises defaulted on domestic debt amounted to $11.4 billion (about 74.75 billion yuan), more than twice the amount of the same period last year; the amount of defaults on foreign debt amounted to $3.7 billion, nearly three times the amount of the same period last year.
The first quarter of the real estate companies defaulted on the top of this year’s annual or record
In the past few years, the default ratio of mainland real estate developers has been rising rapidly. The surge in defaults in the first quarter of this year came mainly from two companies – Huaxia Happiness Foundation Co Ltd and Tianjin Real Estate Group Co Ltd, both with a default size of more than 10 billion yuan.
With nearly RMB20 billion in defaulted bonds involving $530 million in bonds and U.S. dollar debt investors including BlackRock and HSBC, Huaxia Happiness has nearly $100 billion in short-term debt. Prior to its default, international rating agencies downgraded its ratings, with Fitch lowering its senior unsecured rating to CCC from B and Moody’s downgrading its Ba3 corporate family rating and corporate backed senior unsecured rating to B2.
The Bloomberg report cited analysis that said the scale of defaults by mainland property developers is likely to hit a record this year as Beijing authorities tighten financing. For example, the Communist Party’s “three red lines” policy has made it difficult for companies with high debt to raise new capital in the capital market, and some underperforming real estate companies with high debt may face greater difficulties.
Mainland real estate companies were hit hard by the Communist Party’s virus (New Crown Pneumonia) epidemic in 2020, with more than 400 real estate companies going bankrupt throughout the same year and defaulted debts soaring 533 percent.
The aforementioned Huaxia Happiness Company, the largest taxpayer in Hebei Province, is located in Tianjin, which ranked third on the mainland in terms of the total size of corporate debt defaults in the first quarter, with the first and second largest provinces and cities in terms of default size being Hainan Province, where Hainan Airlines is located, and Beijing, where Tsinghua Ziguang is located, respectively.
The default scale of electronic and aviation enterprises is expanding
In addition to the surge in the scale of defaults of housing enterprises, the electronics and aviation industries are also more serious areas of debt defaults. For example, serious defaults by Tsinghua Ziguang Group and Hainan Airlines are raising concerns.
Tsinghua Ziguang defaulted on RMB 1.3 billion of domestic debt in November 2020, sparking market concerns about the risk of cross-default on its USD 2.4 billion bonds. In February, Ziguang announced multiple bond defaults, approximately nearly $2 billion in debt and RMB 2 billion in domestic debt.
Subsequently, U.S. Citibank filed a lawsuit in court, demanding that Purple repay the principal and interest on the $200 million debt. Meanwhile, international bondholders began seeking to freeze Purple’s offshore assets to prevent Purple from selling off its overseas assets and repaying its debts at home.
Hainan Airlines’ listed company has entered bankruptcy reorganization proceedings, and the group has been in default since 2019, with a number of bonds still in default after failing to pay in full recently. Hainan Province, where Hainan Airlines is located, defaulted a total of RMB 23 billion of domestic corporate bonds in the first quarter of this year.
Among other sectors, default risk is rising for energy companies, with refinancing ratios falling. Refinancing ratios fell the most in Shanxi and Hebei, two major coal-producing provinces, with Hebei’s Jizhong Energy Group, a Communist Party state-owned enterprise, nearly defaulting in early March.
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