The news that several prominent Chinese state-owned enterprises are considering defaulting on loss-making derivatives contracts is further evidence of the return this year of a depressing emerging markets tradition. Sources at foreign banks active in China tell Euromoney that at least six such banks have received letters from SOEs informing them that the companies reserve the right to revisit derivatives contracts sold them by financial institutions.
The contracts, generally hedging products designed to offset movements in currency or commodity prices, are incurring heavy losses for the companies in question. Companies from the transport sector have been among the worst hit, with one bank source telling Euromoney that state-owned airlines were...
