Stress in China’s $740 billion offshore credit market eased minimally in nearly two years after developer bonds rose as authorities ramped up campaigns to ease the unprecedented property crisis. I was.
The Bloomberg index of China’s junk-dollar bonds, which are dominated by real estate companies, is up nearly 60% from a record low in November to 77 cents against the dollar this week. This is also the highest price in over a year.
This lowered the December market stress gauge to level 3 from 4 in November, marking the level last seen by Bloomberg’s China credit tracker in May 2021 when data compilation began. The tracker shows increasing levels of stress in bands 1-6.
Policymakers have introduced a series of measures since November to stem the housing slump and reduce debt risks for developers, with outgoing Vice Premier Liu He pledging the sector to become the world’s second-largest economy. It is expressed as a “pillar” of Investors say he expects better going into 2023, including expanded efforts to cut costs for homebuyers and plans to ease major financing restrictions that have characterized Beijing’s previous property crackdown. I got in on the news.
Dhiraj Bajaj, head of Asian fixed income at Lombard Odier, said: “The turnaround China has made is much bigger and faster than the market expected.” We believe the announcement is a synchronized move and a structured effort to put China back on its growth trajectory in 2023 and beyond.”
It was a different picture in China’s local credit market, where stress levels rose to 6 last month, the highest since the credit tracker series began. It’s the first time since then.
However, the pressure on the renminbi bond market was largely due to the sell-off of government and high-grade corporate bonds as the government’s lifting of COVID-19 measures encouraged investors to shift to riskier assets. was It does not reflect concerns about default risk in a market where authorities have maintained stability through easy funding terms and debt settlements with investors.
Despite this temporary spike in borrowing costs, China’s local credit markets have avoided the record wave of defaults that hit offshore markets last year. In the latest example of official efforts to minimize payment risk, a local government lender in one of the poorest regions of the country recently extended bank loans for 20 years and defaulted on its bonds. took advantage of policy support to avoid.
Some analysts say that once the policy-induced euphoria wears off, investors in Chinese developer dollar-denominated debt may face real-world challenges as offshore arrears continue and more payment tests take place. It warns you that you may face checks.
Times China Holdings said last week it was behind in payments on its dollar-denominated bonds.
Track payment issues
Monthly bond maturities for Chinese companies that may struggle to repay
“The main risk in 2023 will be big name defaults. There are still many coupons and maturities within the next three months, including among large developers.” Neeraj, Head of Asia Credit at BlackRock Seth said in an interview last month. “The market will now be very focused on the larger players because they are assumed to benefit disproportionately from the policy.”
State Default Breakdown
Shanghai has the most onshore defaulted bonds
Note: Map shows mainland China onshore bond market. Source: Bloomberg
Country Garden Holdings, the nation’s top developer by revenue, faces its biggest repayment test in months, with about $700 million of principal and coupons set to expire in January. The company has told some investors it has the funds to meet those payment needs, Bloomberg News reported, citing people familiar with the matter.
