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When China Fortune Land Development missed a $530 million dollar bond payment in February, the real estate developer was in no hurry to tell its investors.
“They never even said’we breached our contract,'” one of the company’s offshore investors recalled. They only discovered it through third-party trustees. The investor added that its wealth holders, including BlackRock and HSBC’s China Fortune advisers, said they will have to wait for their onshore debt obligations to be prioritized.
China FortuneIt is one of China’s major companies that have built an industrial park and owed a further US$4 billion in debt tightening. As Beijing tightens credit conditions, these companies are facing pressure to repay. Since the beginning of this year, with Chinese companies borrowing more than US$100 billion in debt in the international market, global investors are struggling.
last year, Chinese company default A record US$7.3 billion in offshore US dollar debt and US$22.7 billion worth of RMB bonds. Data from the rating agency Fitch shows that by 2021, they have missed nearly $3.3 billion in U.S. dollar bond payments, which is almost the same as expected the year before the pandemic.
One of the other names that investors worry about is Peking University Founder Group, This is a state-owned enterprise group with billions of dollars in offshore debt and is currently undergoing restructuring.
“China Fortune” declined to comment.
These pressures come from Beijing Seek balance We are heavily in debt from the strong economic recovery from Covid-19. Jimmy Lim, CEO of Modular Asset Management, a hedge fund based in Singapore, said: “The Chinese government clearly wants to establish a more reasonable credit market, which is obvious.
The prospect of default has also forced international investors to reassess how much support the Chinese government will provide to companies with financial constraints.Foreign investors have long believed that Beijing will bail out State-supported groups.
The situation of China Huarong Asset Management, China’s largest distressed debt management company, has heightened concerns about government support. $22 billion owed Debt denominated in U.S. dollars. The price of some offshore bonds issued by the organization is controlled by the Ministry of Finance. After delaying the release of its 2020 financial results, the exchange rate of the U.S. dollar against the U.S. dollar fell to as low as 57 cents last month.The former chairman of the company is January execution For financial crimes.
The same Huarong bond is now trading at 66 cents per dollar.
Refinitiv data shows that Chinese issuers will face the largest ever maturity wave of US dollar bonds this year, reaching US$118 billion. But even so, compared with the 780 million yuan (120 million US dollars) onshore debt maturing in 2021, it is also in contrast. The latter number may have a huge impact on offshore bondholders, especially if the restructuring of onshore debt is a priority.
Soo Cheon Lee, founder and chief investment officer of SC Lowy, a Hong Kong-based non-performing credit manager, said: “What happens on land will obviously drive what happens at sea.” He added, taking “China Fortune” as an example. For example, “Even onshore personnel are trying to figure out what happened.”
China’s restructuring process may be slow. Zhang Shuncheng, deputy director of Fitch China’s corporate research, said that more than one-fifth of the companies that have defaulted since the beginning of 2018 have not completed the reorganization.
Zhang said that onshore defaults are usually resolved through Chinese courts, which means they take far more time than offshore bondholders usually prefer out-of-court agreements.
The presence of powerful onshore investors complicates the “China Fortune” case. Ping An is one of the world’s largest insurance companies. It is both an investor and a member of the creditor committee of a real estate group. Other members of the committee include the State Bank of China and insurance regulators, as well as the cash-strapped Hebei provincial government. Hebei Province failed to pay China Fortune for work on infrastructure projects, which led to its breach of contract.
Offshore bondholders who collectively hold more than US$1.5 billion in Chinese wealth bonds formed their own committee.
In the first quarter, Ping An suffered a loss of US$2.8 billion due to its debt and equity investment in China Fortune. An analyst from a global rating agency said that as a result, regulators may also reconsider how much property risks Chinese insurance companies should bear.
Standard & Poor’s said this will further consume developers’ liquidity, which is the main source of high-yield bond issuance in Asia each year.
SC Lowy’s Lee said that the recent increase in missed bond payments was “ironically” due to China’s very good economic data.in spite of Strong economic growthHe said that Beijing is unwilling to accept the bailout, which means that the recent series of defaults are likely to last for several years.
However, Li said that given that global investors are an important source of US dollar financing for Chinese companies, the government will take measures to limit the losses of offshore bond holders.
He said that China “can’t just squeeze offshore companies, because many Chinese companies still need offshore funds.”
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