China’s July corporate bond defaults jump to a four-month high as funding dries up amid risk aversion in a slowing economy

Onshore corporate bond defaults reached at least 14.4 billion yuan (US$2.1 billion) from 14 notes in July, bringing the total year-to-date defaults to 70.9 billion yuan from 89 bonds

After two months of declines through May, bond delinquencies are climbing back

2-MIN READ2-MIN

Construction workers on the Nanchang-Ganzhou high-speed railway in Nanchang of Jiangxi Province on July 18, 2019. Photo: Xinhua

Published: 12:50pm, 2 Aug 2019Updated: 12:50pm, 2 Aug 2019

Company bond defaults in China hit a four-month high in July as a slowing economy and risk aversion triggered by the unexpected seizure of Baoshang Bank marred refinancing prospects at weaker firms.

Onshore corporate bond defaults reached at least 14.4 billion yuan (US$2.1 billion) from 14 notes in July, according to data compiled by Bloomberg, bringing the total year-to-date defaults to 70.9 billion yuan from 89 bonds.

After two straight months of declines through May, bond delinquencies are climbing back. The rebound coincides with weak manufacturing data showing the nation’s economic recovery lost steam in the first half of the year. Early indicators also show growth continued to weaken in July, bolstering the case for greater policy support.

Risk appetite in China’s local bond market took a hit after Baoshang’s seizure in May, limiting funding channels for the nation’s weaker firms. The sell-off pressure is also increasing in the secondary bond market, adding to more refinancing difficulties for private firms, said Yang Hao, fixed-income analyst from Nanjing Securities Co. He expects repayment pressure to remain elevated and sees more defaults going forward.

Here’s a further breakdown of China’s onshore default data:

Real estate sector with 10.2 billion yuan defaults tops year-to-date default list, followed by wholesale at 9.5 billion yuan and retail sales at 7.9 billion yuan
Investment companies topped July’s defaults, accounting for 45 per cent of monthly total
Jiangsu, Anhui provinces and Shanghai were among the top 3 default locations in July

More market views: