Amid Market Turmoil, Retailer Suning Announces $151 Million Bond Buyback

Chinese retail giant Suning.com Co. Ltd. kicked off its second bond buyback in as many months on Friday, as it seeks to shore up investor confidence after the default of a state firm with a supposedly clean bill of financial health shook the bond market.

The retailer will spend 1 billion yuan ($151 million) buying back seven tranches of bonds that were issued in 2018 at 100 yuan apiece. As of Friday, those bonds are worth 80 yuan or less, according to data service provider CEIC.

A statement from the company says it hopes the buyback will enhance investors’ confidence and maintain the stability of the company’s bond prices amid a volatile market. It adds that the move could also lower its debt-to-asset ratio and cut its financial expenses.

The abrupt 1 billion yuan default of a state-owned, triple-A-rated coal miner in the central province of Henan on Thursday triggered chaos in China’s $11 trillion bond market, and was followed by the downgrades of another three state-owned enterprises’ credit ratings.

These defaults, and others like them this year, have shown that firms with highly rated credit and those backed by the state may be less of a safe bet than they appear. According to a report by Zhongtai Securities on Thursday, the combined default amount of A-rated Chinese companies this year was up by 70% year-on-year to 56.6 billion yuan as of Wednesday, the first time it exceeded the figure for companies with a rating of B and lower since 2016.

The size of state firms’ defaults over the same period was up over 500% year-on-year to 53.4 billion yuan, according to the report.

Following the default of Yongcheng Coal and Electricity Holding Group Co. Ltd., multiple coal-mining companies in Shanxi and Hebei provinces either canceled their bond issuance plans or slashed fundraising targets, and traded coal bonds plunged across China.

Domestic credit rating agency China Chengxin International Credit Rating Co. Ltd. rushed to downgrade the rating of the coal miner as well as its parent company on Tuesday, and downgraded another two state-owned firms a day later.

Suning has 23.6 billion yuan of debt set to mature within one year as of Sept. 30, while it has just 13.6 billion yuan of cash and cash equivalent, according to its third quarter report.

The retailer saw its profit fall by nearly half to 547 million yuan in the January to September period this year. It also closed more than a quarter of its brick-and-mortar stores this year.

On Wednesday, the company announced it had finished a 1.5 billion yuan buyback on one of its bonds issued in 2018.

Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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