Ris­ing de­faults in bond mar­ket nor­mal and con­trol­lable: ex­perts

Global Times US Edition - - BIZUPDATE - By Zhang Hong­pei Page Edi­tor: lix­u­an­[email protected] glob­al­times.com.cn

Ris­ing bond de­faults in China are part of a nor­mal process that helps the na­tion’s debt sec­tor be­come more mar­ket-driven by aban­don­ing the prac­tice of guar­an­teed pay­ments, in­dus­try an­a­lysts said.

As of Tues­day, 47 Chi­nese com­pa­nies de­faulted on 54.89 bil­lion yuan ($7.97 bil­lion) in­volv­ing 98 do­mes­tic bonds in 2019, fig­ures from fi­nan­cial data provider Tonghuashu­n showed.

The real es­tate sec­tor had the high­est num­ber of bond de­faults.

The 16 HNA 02 bond, is­sued by do­mes­tic con­glom­er­ate HNA Group, de­faulted on about 1.6 bil­lion yuan on Mon­day, ac­cord­ing to me­dia re­ports from Tonghuashu­n.

There are con­cerns in the mar­ket about whether this year’s bond de­faults would break the record set in 2018, bring­ing more chal­lenges to reg­u­la­tors and in­vestors.

The record wave of cor­po­rate bond de­faults last year hit 115.45 bil­lion yuan in­volv­ing 118 cases, while in 2017, the value was 33.75 bil­lion yuan, ac­cord­ing to another fi­nan­cial data provider Wind.

“It is hard to pre­dict if the num­ber of de­faults will ex­ceed that of 2018,” said Dong Dengxin, di­rec­tor of the Fi­nan­cial Se­cu­ri­ties In­sti­tute at the Wuhan Univer­sity of Sci­ence and Tech­nol­ogy.

“As long as the de­faults don’t in­volve fraud or il­le­gal eco­nomic be­hav­ior, but arise from prob­lems with busi­nesses’ op­er­a­tions, they are a nor­mal part of the cap­i­tal mar­ket,” Dong told the Global Times on Wed­nes­day.

Do­mes­tic eco­nomic down­ward pres­sure and the un­cer­tain­ties caused by the com­plex ex­ter­nal en­vi­ron­ment have posed chal­lenges to do­mes­tic com­pa­nies, as shown in the bond mar­ket, ex­perts said.

“But it is also a proper ad­just­ment process when the na­tion’s bond sec­tor be­comes more mar­ket-driven and guar­an­teed pay­ments are aban­doned,” Liu Xuezhi, a se­nior econ­o­mist at Bank of Com­mu­ni­ca­tions, told the Global Times on Wed­nes­day.

“Po­ten­tial risks brought by the de­faults are con­trol­lable if they do not ex­pand to the point where they trigger sys­temic risks,” Liu noted.

Pan Gong­sheng, a deputy gover­nor of the Peo­ple’s Bank of China (PBC), the coun­try’s cen­tral bank, said dur­ing the two ses­sions in March that de­faults are nor­mal. De­faults help break the sys­tem of guar­an­teed pay­ments and cor­rect faults in the mar­ket.

“They are ben­e­fi­cial for a nor­mal in­vest­ment cul­ture, a nor­mal price and re­sources al­lo­ca­tion in the bond mar­ket,” said Pan.

The of­fi­cial noted that China will con­trol the amount of bond de­faults in 2019, us­ing both le­gal and mar­ket means.

Bond de­faults in­creased last year, but were not ex­ces­sively high, he said.

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