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Opinion

Chinese high-yield borrowers face refinancing crunch

New numbers suggest there could be trouble ahead for Asian high-yield issuers.

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Moody’s released the latest series of its Asian Liquidity Stress indicator earlier this month and found it at the highest level on record, 38.6%.

Evaluating that number in its own right is arcane, but what is significant is that it is at a higher level even than at the height of the global financial crisis.

Another Moody’s report helps us to understand why. The problem is, primarily, about the refinancing ability of Chinese high-yield companies.

RMB4 trillion of onshore bonds issued by Chinese companies will mature in 2019, 62% of which have an AA or lower onshore rating.

In the Chinese offshore system, AA- is the threshold of investment grade, and therefore theoretically equivalent to BBB- in international systems; in practice, many doubt the equivalence and think Chinese ratings far weaker.

Additionally, $56 billion of offshore Chinese corporate bonds are due in 2019, half of which are high-yield or unrated, according to Dealogic.

Trade war

These numbers, in themselves, are not extreme, and in fact less onerous than 2018 – the really heavy redemption hits come in 2021 – but the problem is that refinancing, both onshore and offshore, is difficult in light of the US-China trade war.


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