Credit: Mixed sentiment in China credit


HY credit is still facing liquidity risks
Nathan Chow29 Oct 2021
    Photo credit: Unsplash Photo


    China HY credit sentiment remains mixed, with developers not quite out of the woods. While sentiment was lifted by Evergrande dramatically averting default by repaying some of its overdue interest within the grace period, Modern Land, a much smaller developer with CNY 100bn of assets, defaulted on a USD250m bond on Monday. Liquidity risks could stay elevated for some time in the Chinese real estate sector, especially if property sales are to languish as buyers await clarity on new property taxation to be unveiled by the State Council. We reiterate our view that credit for the riskiest firms should remain unfavoured, notwithstanding a possible recalibration of policy measures (see Credit: Relief in China credit amid reassurances, 22 Oct 2021).

     

    Chinese policymakers are also moving to assuage concerns that offshore USD bondholders may be less favourably treated compared to onshore bondholders. China’s National Development and Reform Commission (NDRC) held a meeting with developers this week, emphasizing that they should meet all offshore debt obligations and uphold their reputation and market rules. Selective defaults in the offshore market are emphatically not acceptable for the authorities, and the NDRC clarification this week should reassure offshore investors that they will be treated fairly alongside onshore investors. The NDRC also mentioned that developers should improve their foreign debt structure, which is particularly pertinent given high yields and refinancing risks in the USD credit market. The good news is that the NDRC will continue to approve reasonable requests for FX transfers to meet offshore debt repayments. As such, we could see Chinese firms relying more on onshore RMB financing going forward, while reducing offshore USD liabilities that are now expensive to refinance


     

    Chang Wei Liang

    Credit & FX Strategist
    [email protected]
     
     
     
    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

    The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. 

    This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at [email protected] for matters arising from, or in connection with the report.

    DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-878-9999. Company Registration No. 196800306E. 

    DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.