China's default rate could creep higher to 5.9% in November
China's offshore trailing 12-month default rate might rise to 5.9% from the current 5.8% if two of the 591 issuers miss an interest or principal payment in November. In the last 12 months, 27 issuers that hadn't been in debt trouble in the past defaulted (new defaulting issuer) and we expect this trend could continue at an average of 2.3 new defaulting issuers. Although the default rate has improved for two consecutive months since September, this was driven by the base effect (i.e. fewer surviving issuers) rather than an improvement in credit fundamentals, as 25% of Chinese non-investment grade property issuers (32 out of 127 issuers) have already defaulted in the past 12 months. Default rates might deteriorate again when refinancing demand meets negative market sentiment in early 2023.
BI default rate scenario
There might be at least two dollar-bond issuers that halt interest/principal payments in November, including CIFI and Greenland. Our US dollar-bond default figure doesn't include CIFI's Hong Kong dollar-denominated convertible, which defaulted on Oct. 8. The issuer faces at least $33 million of interest payments from its dollar bonds and loans due in November, based on Bloomberg's DDIS <GO> function. Greenland said it won't be able to pay off the $362 million outstanding dollar issuance due in November.
As of Oct. 31, the trailing 12-month default volume marked $30.9 billion of dollar-bond defaults and 15.5 billion yuan ($2.1 billion) of domestic-bond defaults, based on bond amounts outstanding, involving 34 offshore dollar issuers and six domestic yuan issuers.
-- Jason Lee
Rolling 12-Month Defaults as of Oct. 31
Chinese yuan issuer-based default distribution
U.S. dollar issuer-based default distribution
Jiayuan executed exchange offers for two months consecutively and AAC continued to tender for outstanding notes.
Haidilao International Holdings and Landsea Green Management conducted a tender offers and an exchange offer for the first time. The number of consent solicitations, tender offers and exchange offers by Chinese issuers increased since last month but the overall amount remains low relative to the previous peak.
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Corporate actions by Chinese issuers
Credit Rating Change: 11 Chinese issuers downgraded In October
Rating change: CIFI Holding Group
Entities experiencing rating changes
Market could face higher refinancing stress
Refinancing risk arising from maturities in China's corporate-bond markets is increasing in November compared with previous months, potentially spurring market volatility. 31 non-bank, non-financial dollar-bond issuers face a combined $9 billion of principal payments in November, equivalent to 1.8% of the amount outstanding in the market. This is higher than the $7.1 billion (1.2%) of maturities in the same month last year and $7.3 billion (1.4%) of maturities in October this year. On a sector level, real-estate issuers have $3.5 billion of maturities in November, or 2.2% of the sector's total amount outstanding.
Chinese bond market debt maturity profile ($)
