China's 6.5% default rate may rise on refinance and payment test
China's offshore trailing 12-month default rate might rise further to 6.6% from the current 6.5% if three of the 587 issuers miss an interest or principal payment in September; the default rate would stay flat if only two miss. In the last 12 months, 31 issuers that hadn't been in debt trouble in the past defaulted (new defaulting issuer) and we expect this trend would continue (at an average of 2.6 new defaulting issuers). According Bloomberg News at least 14 issuers face debt-payment tests this month (vs. 12 last month), including KWG and Greenland. Our best-case and worst-case scenarios assume there would be no default or all 14 issuers would default this month, and we believe the latter case is unlikely.
BI default rate
Source: Bloomberg Quant Platform (BQuant) , Bloomberg Intelligence
Monthly bond-default data showed recent credit events were dominated by real estate, and we expect this to continue. As of Aug. 31, the trailing 12-month default volume marked $32.3 billion for dollar-bond defaults and 16.4 billion yuan ($2.4 billion) of domestic bond defaults, based on bond amounts outstanding, involving 38 offshore dollar issuers and 7 domestic yuan issuers. In the dollar-bond market, notes issued by 34 real estate firms in the table were over 97% of all defaults.
Yuzhou Group overtook Kaisa to become the largest defaulting issuer in the offshore market, accounting for 16% of the total defaulted amount outstanding in the last 12 months, after overtaking Evergrande to become the second-largest issuer last month.
Rolling 12-month defaults as of Aug 31
Source: Bloomberg SRCH <GO>, Bloomberg Intelligence
U.S. dollar issuer-based default distribution
Source: Bloomberg Intelligence
The number of consent solicitations, tender offers, and exchange offers by Chinese issuers experienced the first drop over the past 19 months. This was the first time there has been a reverse trend in the corporate action event. Given the growing default rate, it is worth watching if companies continue to propose corporate actions to avoid entering into distress situations.
There was only one consent solicitation in August, by Jinke Properties Group.
CACT<GO> keeps you updated on all the corporate actions.
Corporate actions by Chinese issuers
Source: Bloomberg CACT <GO>, Global Data
Credit rating change: 15 Chinese issuers were downgraded in August
According to Bloomberg-compiled data, the number of Chinese entities downgraded by local agencies (excluding changes in rating outlook and rating withdrawn) dropped significantly in August.
Rating change: Radiance Holdings
Source: Bloomberg RATC <GO>
Entities experiencing rating changes
Source: Bloomberg Quant Platform (BQuant), Global Data
Dollar-bond maturity faces another spoke in September
Refinancing risk arising from maturities in China's corporate-bond markets is rising in September compared with previous months, potentially adding market volatility. 34 non-bank, non-financial dollar-bond issuers face a combined $10.6 billion of principal payments in September, equivalent to 1.9% of the amount outstanding in the market. This is similar to the the $9.7 billion (1.6%) of maturities in the same month last year. On a sector level, real-estate issuers have $3.7 billion of maturities in September, or 1.9% of the amount outstanding.
Chinese bond market debt maturity profile ($)
Source: Bloomberg DDIS <GO>, Bloomberg Intelligence
