Fitch delivers a warning on Chinese bonds and refinancing risks

Fitch ratings agency is warning about the overstretching of corporate balance sheets and rising defaults within China, noting that overall credit events are happening more frequently. Fitch has also stated that corporate bond defaults are likely to continue increasing through 2018 as credit conditions continue to tighten in China.

Key quotes

"Corporates that have over-stretched their balance sheets during the previous credit boom to fund aggressive business expansion and those which have uncompetitive or structurally ailing business models, will struggle to refinance their maturing debt this year.

The increased incidence of corporate defaults reflects the government's efforts to contain leverage and reduce complexity in the financial system, particularly through a clampdown on shadow-financing activities..

Ten onshore bond issuers have defaulted on 17 bonds... total principal amount of CNY14.6 billion in 2018 (as of 7 May 2018).

Compared with 18 defaults on 46 bond issues with a total principal amount of CNY39.3 billion in the whole of 2017.

Trust loan defaults have increased, including a provincial state-owned construction company.

Credit events have also risen, eg. DunAn, a large private manufacturer based in Zhejiang with CNY45 billion in outstanding debt, asked the provincial government to intervene with banks to resolve a liquidity crisis, citing systemic risk."