Up to RMB5tn of loans to become due for repayment this year

April 14, 2014 Leave a comment

Up to RMB5tn of loans to become due for repayment this year

Staff Reporter

2014-03-29

China will see between 4 trillion and 5 trillion yuan (US$645 billion-$805 billion) worth of trust products coming due this year, and nearly 300 billion yuan (US$48.3 billion) of corporate bonds facing repayment, raising the curtain for possible defaults in the financial market, Beijing’s Economic Information Daily reports.

The second and third quarters will be the peak period for repayment, puttin pressure on the property, coal and steel industries especially. Slowing investment growth is the result of China’s government adjusting the country’s economic structure, and while there will be a certain degree of tolerance over potential defaults, caution will be needed to prevent a negative chain reaction in the system, including corporate guarantee risks and high-interest-rate risks, experts said.

Out of the total trust products, 51.77% belong to the property, 26.74% are related to infrastructure projects and 17.97% are held by businesses.

The trust industry is seen to have liquidity risks, with funding shortage reaching as much as 115.6 billion yuan (US$18.62 billion), according to a report by the Shanghai Advanced Institute of Finance (SAIF) at Shanghai Jiaotong University.

In 2014, 1,706 corporate bonds will create cash flows totaling 277.1 billion yuan (US$44.65 billion).

The National Development and Reform Commission, China’s chief economic planning agency, said 2014 will see the payment peak for due corporate bonds, also expecting municipal investment bonds to become due to the tune of around 100 billion yuan (US$16.11 billion) this year.

The State Council, China’s cabinet, has identified five industries as being weakened by overcapacity, with many steel, shipbuilding, cement and plate glass companies concentrated in Jiangsu province, thus giving certain pressure on financial institutions in the eastern coastal province, experts said.

As many enterprises have faced low profit returns with high liabilities as the nature of China’s economic structure changes, most financial institutions have become cautious when it comes to offering loans to traditional industries, fearing a rising rate of non-performing loans.

JPMorgan Chase in a recent report said it expects China’s fixed asset investment growth to slow to 18.6% in 2014 from 19.6% in 2013 due to slowing investment in manufacturing, infrastructure and property on the back of overcapacity, limited financing power from local governments, slowing growth in property prices and tightening financing.

Five industries — steel, cement, aluminum, plate glass and shipbuilding — are facing overcapacity problems with total debts of about 7.7 trillion yuan (US$1.24 trillion), expected to possibly create combined non-performing loans of about 570 billion yuan (US$91.8 billion), the report said, citing estimates by an unnamed institution.

 

Filed under Macro Trends

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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.

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