Caixin
Nov 20, 2020 08:32 PM
DAILY CHART

Chart of the Day: Bond Defaults Trigger Selloff

A new wave of bond defaults in China has shaken the market, triggering a sudden selloff in corporate debt.

Many banks, especially small and midsize ones, have scaled back their investments in bond funds, including one joint-stock bank that cut its investment by tens of billions of yuan, sources familiar with the matter told Caixin.

Meanwhile, several bonds issued either by defaulters’ related companies or firms at a high risk of default saw trading suspended Thursday after their prices plunged. One of the bonds was issued by Tsinghua Holding Co. Ltd., controlling shareholder of chipmaker Tsinghua Unigroup Co. Ltd., which defaulted on a bond on Monday.

The recent string of bond defaults, including repayment failures by a coal miner and a major carmaker, has highlighted Chinese companies’ growing financial difficulties. The issue has caught the attention of the country’s top economic planner, which called for local governments to step up efforts to manage default risks in the corporate bond market.

COTD CHART

The default wave also shed lights on some suspected violations of bond issuers. Yongcheng Coal and Electricity Holding Group Co. Ltd., for example, was involved in “structured issuances” (结构化发行), a shady fundraising practice in which a company buys a portion of its own offerings to inflate issuance sizes and create a better image to attract investors, Caixin has learned from knowledgeable sources. Financial regulators are clamping down on the behavior as industry insiders regard it as a threat to the stability of the bond market.

In addition, Brilliance Auto Group Holdings Co. Ltd. faced an arbitration filed by one of its creditors as the company transferred some valuable assets just as it was about to default on its debts. On Friday, the carmaker entered bankruptcy restructuring after a court ruling.

Here is some related news about these companies and the regulatory reaction:

Brilliance Auto Group

BMW’s Joint-Venture Partner Sees Bonds Plunge on Cocktail of Rumors, Legal Trouble and Future Uncertainty

BMW’s Chinese Venture Partner Defaults on 1 Billion Yuan Bond

BMW’s China Venture Partner May Be Forced to Restructure

BMW’s Main China Venture Partner Sued by Singapore Creditor

Brilliance Auto’s Debt Problems Drive It Into Restructuring

Yongcheng Coal

Default by Henan Coal Mining Company Sends Tremors Across China

Yongcheng Coal Pays $4.9 Million of Interest on Defaulted $151 Million Debt

Exclusive: Debt-Ridden Coal Miner Faces Nov. 24 Deadline to Avoid Triggering More Bond Defaults

Yongcheng Coal Bond Default Probe Expands to More Institutions

Tsinghua Unigroup

Bleeding Cash and Deep in Debt, Chipmaker Tsinghua Unigroup Sees Bond Prices Plummet, Before Stabilizing

Prestigious University’s Chipmaking Progeny Fails to Buy Back 1 Billion Yuan Bond

Exclusive: Tsinghua Unigroup Fails to Extend $197 Million Bond Payment

Tunghsu Optoelectronic

Another Day, Another Chinese Corporate Bond Default

Responses from regulators

SOE Bond Defaults Show Up on Radar of China’s Top Economic Planner

Interbank Regulator Bars Bond Issuers From Buying Their Own Debt

Wu Hongyuran contributed to this report.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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