China dollar-bond default hit 5.7% and could edge up higher
China's offshore trailing 12-month default rate may reach 6% from the current 5.7% if two of the 585 issuers miss an interest or principal payment in July, in our scenario analysis. In the last 12 months, we saw 24 issuers that hadn't been in debt trouble in the past defaulted within the period (new defaulting issuer); our case assumed that this trend will continue. The property sector will continue to face debt-payment tests and that may bring the default rate even higher, above 7%. According to a list compiled by Bloomberg News, there are at least nine property issuers facing debt-payment tests this month, including Central China, KWG, and Greenland. Our worst-case scenario assumes all the nine issuers will default in July.
BI default rate
Source: Bloomberg Quant Platform (BQuant) , Bloomberg Intelligence
Monthly bond-default data showed recent credit events were dominated by the real-estate sector, and we expect the trend will continue. As of June 30, the trailing 12-month default volume marked $25.5 billion for dollar-bond defaults and 37.8 billion yuan ($5.4 billion) of domestic bond defaults based on bond amounts outstanding, involving 33 offshore dollar issuers and 11 domestic yuan issuers. In the dollar-bond market, defaulted bonds issued by 29 real estate firms in the table comprise over 96% of all defaulted bonds.
Kaisa trumped the others as the largest defaulting issuer in the offshore market, accounting for 16% of the total defaulted amount outstanding in the last 12 months. China Evergrande is the second-largest defaulting issuer, followed by Yuzhou Group.
Rolling 12-month defaults as of June 30
Source: Bloomberg SRCH <GO>, Bloomberg Intelligence
U.S. dollar issuer-based default distribution
Source: Bloomberg Quant Platform (BQuant)
The consent solicitations, tender offers, and exchange offers by Chinese issuers rebounded from the 2022 low. With the increasing default rate, we continue to see more corporate actions proposed by the issuers. The growing demand for exchange offers could be seen since late 2020. Exchange offers remain the dominant corporate action that issuers seek this month and the trend is expected to continue based on the current data.
CACT<GO> keeps you updated on all the corporate actions.
Corporate actions by Chinese issuers
Source: Bloomberg CACT <GO>, Global Data
Credit rating change: 76 Chinese issuers were downgraded in June
Rating change: Country Garden
Source: Bloomberg RATC <GO>
Entities experiencing rating changes
Source: Bloomberg Quant Platform (BQuant), Global Data
Dollar-bond issuers face $14.1 billion maturity wall
China's dollar-bond markets will have higher refinancing risk in July arising from the third maturity wall this year, which could potentially raise market volatility. In July, 42 non-bank, non-financial issuers face a combined $14.1 billion of principal payments, equivalent to 2.4% of the amount outstanding in the market. This is notably higher than the $6.3 billion (1.1%) of maturities in the same month last year. On a sector level, real-estate issuers have $6.6 billion of maturities in July, or 3.2% of the sector's total outstanding, similar to the 3.1% in June.
Investors may need to pay closer attention to distressed issuers which are or were due to pay interest or principal in July, especially issuers that have proposed debt exchanges.
Chinese bond market debt maturity profile ($)
Source: Bloomberg DDIS <GO>, Bloomberg Intelligence