Bond defaults set to rise among Chinese companies, says S&P Global Ratings
Reform efforts are picking up pace among state-owned enterprises, leading to an increase in bond default risk, analysts say
Efforts to reform China’s struggling state-owned enterprises has led to a higher risk of companies missing debt payments, but that hasn’t dampened investors’ appetite in China’s bond market, analysts say.
“We’re seeing new defaults across all instruments, from private companies to state-owned enterprises (SOEs), there’s no escape,” said Christopher Lee, managing director and chief ratings officer at S&P Global Ratings.
Defaults, or default risks, refer to companies not being able to pay back investors on debt obligations, usually in the bond market – where companies issue notes at a fixed rate of interest to borrow money.
More than 10 bond issuers in China, including state-owned enterprises and private companies, have defaulted on bond payments this year, according to S&P.
“This is already a record high compared to the same time last year. It’s a new high [and] a new trend,” he said.
Lee explained that lenders are taking note of China’s “supply-side reforms”, which were implemented late last year, and are targeted at closing and liquidating industrial enterprises to tackle overcapacity problems and to reduce leverage.
“I think [the policy] was taken as a cue by some lenders to stop providing liquidity for some of these struggling companies. We’ve seen that translate into an increase of defaults in the SOE sector,” he said.
