China to be No.1 corporate bond market but defaults a possibiity

March 4, 2014 Leave a comment

China to be No.1 corporate bond market but defaults a possibiity

Staff Reporter

2014-02-28

China’s economic slowdown has brought severe tests to the operation of various industries in the country, especially those featuring high-leveraged operations, notably power generation and construction materials, as their debts doubled their equity capital as of the end of September 2013.

Standard & Poor’s announced on Feb. 26 that as of the end of 2013, the total debt of non-financial companies in China had topped US$12 trillion, 120% of GDP. Some financial exports worry that with tightening liquidity and rising lending costs, some industries with overcapacity may go bust.

The ratings agency also predicted that the Chinese market for non-financial corporate bonds will continue growing and overtake the US to become the world’s largest in two years and may even surpass the combined scale of the US and the eurozone in the future. By the end of 2014, the scale of China’s non-financial corporate bond market will top US$13.8 trillion, higher than the US at US$13.7 trillion.

The National Development and Reform Commission, China’s economic planning agency, reported that some 100 billion yuan (US$16.5 billion) of corporate bonds for investment in infrastructure projects will mature and some bond issuers, especially those with overcapacity, may default.

To avoid this, the commission announced permission for platform companies to issue bonds for refinancing, substituting low-cost debts for high-cost ones and extending repayment deadlines.

Guangzhou’s Southern Metropolis Daily reports that Liu Dongliang, an analyst at China Merchants Bank, says the country’s previously high economic growth rate concealed the problems associated with heavy reliance on high debt for growth, but these will surface as GDP growth slows.

Gao Yongbiao, an analyst at Sealand Securities, said the likelihood of default for corporate bonds issued by industries with overcapacity such as steel and paper is high, the Southern Metropolis Daily reported.

 

Filed under Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment