Financially weak privately-owned enterprises (POEs) in China will face more liquidity and refinancing difficulties in the upcoming months as investors remain risk averse, said Moody's Investors Service recently.
Weak POEs are unlikely to significantly improve their financial profiles and cash flow in 2021, given the broad negative impact of coronavirus disruptions, said Moody's analyst Miranda Zhai, a Moody's Analyst.
"As China's economy continues to recover from the coronavirus-led economic slowdown over the next 12 months, the government's credit-easing measures are unlikely to be as vigorous as in the first half of 2020," she noted.
POEs have increasingly issued bonds with short tenors this year, leading to a looming maturity peak in the first half of 202, according to Moody’s.
Some of the weakest companies will likely lose access to the onshore bond market as their fundamentals come under pressure and liquidity in the market subsides, the credit rating agency said.
Meanwhile, foreign capital inflows into China's onshore bond market have increased, amid the low interest rate environment worldwide and the renminbi's resilient exchange rate against the US dollar, Moody’s pointed out.
Chinese government bonds have become an attractive lower-risk investment for investors this year, with RMB bonds held by foreign investors climbing to RMB2.9 trillion in Q3 2020, a 39% increase from the same period a year ago, the firm added.
Moody's expects the trend of increasing foreign investment into China's onshore bond market will continue in 2021 as China's economy gradually recovers and as major global bond indices such as the FTSE Russell begin to include Chinese bonds.