China has more dis­tressed cor­po­rate debt than all other emerg­ing mar­kets

Gulf Times Business - - BUSINESS -

In the span of just 11 months, China went from hav­ing no dis­tressed dol­lar-de­nom­i­nated cor­po­rate bonds to hav­ing more than any other emerg­ing mar­ket.

The world’s sec­ond-big­gest econ­omy has 15 bonds whose op­tion­ad­justed spreads over US Trea­suries were above 1,000 ba­sis points as of November 6, ac­cord­ing to a Bloomberg Bar­clays in­dex.

That’s more than all the other na­tions on the gauge, com­bined.

An on­go­ing trade war and slower eco­nomic growth af­ter years of break­neck ex­pan­sion are strain­ing the na­tion’s highly- lever­aged cor­po­rate sec­tor.

Prop­erty de­vel­op­ers in par­tic­u­lar are fac­ing surg­ing bor­row­ing costs as re­fi­nanc­ing pres­sures in­ten­sify amid the govern­ment’s ef­fort to rein in real es­tate prices.

At least four prop­erty-re­lated firms de­faulted on debt this year, and in­vestors are brac­ing for more.

China Ever­grande Group, the coun­try’s sec­ond-largest builder by sales, priced a dol­lar bond at 13.75% last week, the high­est in­ter­est rate it has ever paid on a dol­lar is­sue, ac­cord­ing to data com­piled by Bloomberg.

China’s debt, both dis­tressed and other­wise, ac­count for a quar­ter of all se­cu­ri­ties in­cluded in the gauge, which tracks about 660 dol­lar notes with a par value of at least $ 500mn.

The Asian na­tion is home to the de­vel­op­ing world’s big­gest bond mar­ket.

The jump in China’s dis­tressed bonds helped fuel an in­crease in bor­row­ing costs for emerg­ing-mar­ket com­pa­nies to the high­est level in more than two years.

The im­pact of the trade war on the Asian na­tion has com­pounded pressure on de­vel­op­ing as­sets, al­ready reel­ing un­der the strain of higher US in­ter­est rates and Trea­sury yields.

Brazil has the sec­ond-high­est num­ber of dis­tressed bonds, with three in the in­dex.

Ja­maica and Rus­sia are tied in third place with two se­cu­ri­ties each.

Debt is typ­i­cally con­sid­ered un­der pressure if its spread above the risk-free rate is 1,000 ba­sis points or more.

There are also a grow­ing num­ber of cor­po­rate notes whose spreads are grad­u­ally en­ter­ing the dan­ger zone.

This year, there are 12 bonds on the Bar­clays Bloomberg in­dex whose op­tion-ad­justed spreads were be­tween 800 to 999 ba­sis points, up from two at the end of 2017.

The Bloomberg Bar­clays gauge of emerg­ing-mar­ket cor­po­rate bonds rose for a fifth day on Wed­nes­day, cutting the aver­age yield to 6.38%.

The rate had climbed fol­low­ing a low of 4.26% in Septem­ber 2017.

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