Thursday, 7 April 2016

Chinese bond market

Chinese companies cancelled more than double the amount of bond offerings in March compared with a year earlier, as mounting defaults increased financing costs.

At least 62 Chinese firms postponed or scrapped 44.8 billion yuan [$7 billion] of planned note sales last month, compared with 23 companies with 15.7 billion yuan a year ago, according to data compiled by Bloomberg. China Eastern Airlines Corp. cancelled issuance of 3 billion yuan of short-term bills on April 1 because of market volatility, according to a statement on Shanghai Clearing House website Tuesday.

The surge in scrapped offerings reflects investors’ growing concern about default risks amid the worst slowdown in a quarter century. At least 12 companies have missed payments on bonds in the past two years even as the central bank loosened monetary policy to help support the economy. The yield premium of AAA rated corporate securities due in five years over similar-maturity government notes rose 10 basis points last month, the most since November, to 78 basis points.

Fujian Electronics & Information Group Co. cancelled a 300 million yuan planned bond offering on March 31, according to a statement posted on the Chinamoney website, citing market fluctuations. Huafang Ltd. scrapped plans for 150 million yuan issuance of debentures on the same day, it said in a statement on Chinamoney.

It is obvious that it has become more expensive for companies to sell bonds as defaults rise, they want to wait until borrowing costs come down, but is that possible? China is experiencing the free market and it is starting to worry some of the big wigs at the top.

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