The total amount of U.S. dollar bonds issued by mainland companies maturing through 2023 is US$2.14 trillion, putting enormous pressure on debt service. There are concerns that the Chinese Communist Party authorities may not support SOEs as they did before, increasing the risk of SOEs defaulting on their debts.
According to a May 18 report by Nikkei.com, the total amount due from land-based enterprises in the three years to 2023 is US$2.14 trillion, 1.6 times the size of the 2018-2020 period.
Of that amount, $748 billion will be repaid in 2021, $669 billion in 2022 and $727 billion in 2023, according to data from financial information firm Refinitiv. Chinese companies are issuing a lot of corporate bonds with maturities of one to three years and short-term. As corporate debt continues to be issued, final repayments are expected to increase further.
In China, the largest borrowers are large state-owned enterprises. The government-run China National Railways Group has nearly $90 billion to repay by the end of 2023, while State Grid, which is responsible for transmission and distribution, has about $14 billion to repay.
The industry is concerned that the Chinese authorities are avoiding a negative impact on the credit of the authorities from the excess debt of state-owned enterprises, and that there is an intention by the Chinese leadership to reduce “tacit government guarantees.
From January to April of this year, RMB-denominated debt defaults amounted to RMB 95 billion, which is close to a record high. Against the backdrop of increasing corporate debt repayments, defaults will increase further if authority-led support is reduced.
What matters to overseas investors is the movement of less than 10% of foreign currency bonds, with repayments set to reach $172 billion in 2023. And worryingly, defaults on foreign currency bonds are on the rise.
Data from Refinitiv and others show that at least 10 or more Chinese dollar bonds will default after 2020.
According to a May 17 article by China Knowledge, Chinese companies defaulted on a record $7.3 billion of foreign dollar-denominated bonds and $22.7 billion of yuan-denominated bonds last year.
Among the more significant ones, Beifang Founder Group, a large IT company founded by Peking University, went into “reorganization” in February 2020, with several dollar-denominated bonds unable to pay principal and interest.
State-owned semiconductor company Ziguang Group has also defaulted on its U.S. dollar bonds several times. In February, the Hong Kong corporation of the U.S. Citigroup demanded that Ziguang Group pay interest and repay the principal of the bonds and filed a lawsuit.
In February, Huaxia failed to make timely payments on a $530 million dollar-denominated bond, and the real estate developer did not inform investors in the first place.
China Huarong Asset Management, the Communist Party’s state-owned distressed debt processor, is busy dealing with liquidity issues that are critical to the survival of the company. The company’s companies have reached an agreement with banks to extend the repayment of a $100 million loan until the end of August. Huarong has a group-wide balance of nearly 330 billion yuan of corporate bonds, but nearly 60 percent will mature by 2023.
According to ratings agency Fitch, Chinese companies will default on nearly $3.3 billion in dollar-denominated bonds in 2021, the equivalent of the amount expected in a full year before the outbreak of the plague.
The industry is beginning to see “a lower threshold for Chinese companies to decide not to repay their debt. Kenneth Ho of Goldman Sachs expressed caution about the sharp turn in policy by the Chinese Communist Party.
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