Default rate may rise in February
Default rate may rise in February China's offshore dollar-bond default rate may continue to increase if an issuer misses interest or principal payments in February. The dollar-bond default rate climbed to 3.27% from 2.78% last month with six defaults, all real estate firms.
Chinese homebuilders need to rely on asset disposals amid a pullback in property contracted sales, to improve their liquidity and support debt repayment. The sector may continue to see high volatility in the secondary market as a result, and default rates may rise further in the short term if certain issuers' asset disposals fail. In contrast, issuers face less refinancing pressure with $3.3 billion of dollar-bond maturities due this month, which could defuse the risk of higher default rates.
Default rates at 3.27% in January
Source: Bloomberg BQNT <GO>, Bloomberg Intelligence
In January we recorded $1.6 billion of offshore dollar bond defaults, based on bond amounts outstanding, involving six offshore real estate dollar-bond issuers; there was no domestic bond default event. China Aoyuan announced that it wouldn't make payments on four notes. Three of the notes defaulted in January, comprising 56% of the total defaulted amount outstanding in the month. The 7.35% 2023 maturity remains in flat trading status until June, when the issuer needs to make a coupon payment.
By sector, real estate continues to dominate U.S. dollar issuer-based bond defaults and further increased (78%) on a trailing 12-month basis, while energy, technology, health care, and consumer discretionary comprise the remainder.
Actual bond defaults (Jan. 1-31, 2022)
Source: SRCH <GO>, Bloomberg Intelligence
U.S. dollar issuer-based default distribution
Source: Bloomberg BQuant <GO>, Bloomberg Intelligence
Credit rating change: Real estate had lowest upgrade-downgrade ratio in 10 years
China real estate issuers rating change
Source: Bloomberg RATT <GO>
Entities experiencing rating changes
Source: Bloomberg Quant Platform (BQuant), Global Data
Chinese issuers face $45.5 billion maturities
China's corporate-bond markets, onshore and offshore combined, may face less refinancing risk arising from upcoming maturities. In February, 275 non-bank, non-financial issuers face a combined $45.5 billion of debt-principal payments, equivalent to only 1% of the total outstanding. This is smaller than the $59.5 billion (1.5% of the total) in the same period last year. Real-estate issuers have $4.8 billion maturity, or 0.6% of the sector total, down from 1.4% in February 2021.
Meanwhile, investors may need to pay closer attention to distressed issuers who were due to pay interest or principal in January, such as Shinsun, Easy Tactic, and KWG Group. Click on the data tab for a list of bonds that have interest or principal due.
Chinese bond market debt maturity profile ($)
Source: DDIS <GO>, Bloomberg Intelligence
Most negative news sentiment in December
Most negative news of China offer issuers
Source: BBG TREN
New oriental news sentiment and equity price
Source: BBG GN
