China’s bond default is about to break its 2018 record, according to a Bloomberg report.
Data compiled by Bloomberg indicates that there were at least 15 defaults since the beginning of November, pushing the year’s total to 120.4 billion yuan (US$17.1 billion), versus 121.9 billion yuan in 2018.
While the default amount looks small compared to the country’s US$4.4 trillion corporate bond market, the issue has spread to various sectors including real estate, steel making, energy, and software, while the type of borrowers facing repayment problems has expanded from private firms and local state-run firms to business arms of universities, according to the report.
One of those business arms is Peking University Founder Group, which said it failed to repay a 2 billion yuan bond, the report says.
Photoelectric display component maker Tunghsu Optoelectronic Technology also failed to make early repayment on both interest and principal for a 1.7 billion yuan note, the report adds.
S&P Global Ratings puts the onshore default rate in China this year at 0.5%, which is the same as last year’s.
Fitch said the default rate for bonds issued by non-state Chinese companies grew to a record 4.5% in the first 10 months of the year, adding that the number might understate the real level of defaults given that some borrowers settle with bondholders privately rather than through clearing houses.
The default rate for state-owned firms in China was 0.2%, Fitch said adding that the low rate is a result of financial support from the government and better access to funding from banks.
China’s corporate debt hit a record 165% of GDP last year.
A recent report by global financial industry association IIF indicates that China’s total corporate, household and government debt rose to 303% of GDP in Q1 of 2019 from 297% in the same period a year earlier.