SHANGHAI (Reuters) - Chinese firms have delayed or canceled at least 68.8 billion yuan ($10.63 billion) of bond and other fixed income issuance so far in April, as investor concerns over debt defaults mount.
Around 70 firms have delayed or canceled issues, many in excess capacity industries including cement and mining, according to data compiled from China’s two main clearinghouses for the interbank market and the interbank market operator.
An increasing number of Chinese firms in old industrial sectors have encountered repayment difficulties in the past six months as economic growth slows and the government pushes on with painful structural reforms. That has led to higher rates of canceled bond issues as investors shy away from those sectors.
After China Shanshui Cement’s default in November, which helped push low-rated bond yields higher, firms canceled or postponed more than 40 billion yuan of bond issuance.
Although the number of cancellations is striking, analysts said that it likely represents a recalibration of risk appetite as investors assess rising defaults and shifting monetary policy, rather than a fundamental turn in the market as a whole.
“You’re seeing a little more credit defaults, including from (state-owned enterprises), which is making the market nervous,” said Zhou Hao, senior emerging market economist at Commerzbank in Singapore.
“The central bank also looks less aggressive right now, which could trigger a little bit of deleveraging and a widening of spreads, especially for credit bonds. From the central bank’s point of view, it’s justified, because it needs to see how inflation develops, but the bond market is kind of a victim of this wait-and-see policy.”
Chinese fixed income yields, including treasury rates, have moved up noticeably since the beginning of the month in what traders and analysts say is a reaction to signs of strong supply growth and reduced expectations of further monetary easing, in addition to a rash of defaults by industrial firms including Dongbei Special Steel Group Co Ltd.
Benchmark five-year treasuries CN5YT=RR are up 17 basis points since the beginning of April, although sharp rises following last week’s strong March activity data appear to have leveled off. Corporate spreads over treasuries have also risen, although they remain well below levels from the third quarter of 2015 for most issues above high-yield grade.
A separate report from the online financial magazine Caixin, using only data from the market operator, found that close to 60 billion yuan of debt had been canceled or delayed in April.
($1 = 6.4740 Chinese yuan)
Reporting by Nathaniel Taplin and the Shanghai Newsroom; Editing by Jacqueline Wong