Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Expected surge in Chinese company defaults will spur restructuring demand as funds gear up to swoop on distressed assets, says A&M advisor

Expected surge in Chinese company defaults will spur restructuring demand as funds gear up to swoop on distressed assets, says A&M advisor

Corporate delinquencies climbed to a record high of 153.5 billion yuan (US$22 billion) last year, up from 117.1 billion in 2018, according to Wind data. As China’s economic growth slows, more companies are likely to run into liquidity problems, while corporate earnings and cash flow are weakening, says A&M’s Ron Thompson

An increase in bond defaults by Chinese companies expected in 2020 means more opportunities for restructuring advisers, as domestic and global funds gear up to buy distressed assets, a senior partner at global turnaround firm Alvarez & Marsal (A&M) says.

Corporate delinquencies surged to a record high of 153.5 billion yuan (US$22 billion) last year, up from 117.1 billion in 2018, according to Wind data. The upward trend is set to continue as the government strives to strike a delicate balancing act between actively exposing firms to risk and managing the growing financial challenges they are facing, amid the slowest economic growth in nearly three decades.

The government has for the last few years allowed defaults to happen, exposing investors to credit risk, whereas in the past it would rescue any troubled company from the brink of default.

“While there could be defaults or credit issues going forward, it doesn’t necessarily mean companies will die or go insolvent. It just means that maybe there will be rescues, maybe people will take haircuts and it will lead to more meaningful restructurings,” said Ron Thompson, managing director at A&M in Hong Kong, who heads the firm’s Asia restructuring practise.

“The Chinese government is ramping up capital for taking opportunities to help companies in trouble ... there are white knights available, and offshore funds have definitely been raising capital for the opportunity,” he said in an interview. “People in the restructuring space will be busy.”

China is gradually opening up its 2.37 trillion yuan distressed-debt market to overseas players. US institutions will be able to apply for asset management licences and acquire non-performing loans directly from Chinese banks, as part of the “phase one” trade deal struck between Beijing and Washington earlier this month.

This is set to help China’s still fledgling bond market become more mature. The country only started to allow delinquencies in 2014.

As China’s economic growth slows, more companies are likely to run into liquidity problems, Thompson said. Banks are becoming more selective, leading to increasing refinancing risks, while corporate earnings and cash flow are weakening, he said.

“There’s more bond maturities in 2020 and 2021,” he said. “[The maturity schedule] goes up in 2020, 2021, to the extent that profitability and earnings will come under pressure for a particular company. They may find it harder to refinance, and look for extensions or some sort of restructuring.”

Meanwhile, recovering losses from defaulted bonds still remains a drawn-out process with little clarity in China, hindering efforts by market regulators to internationalise the onshore corporate bond market, according to Fitch Ratings.

“Most onshore defaults have yet to show a clear path towards resolution,” Fitch analysts led by Zhang Shuncheng wrote in a recent report.

Of the 98 onshore issuers that have defaulted between 2014 and 2018, 36 sold their debt via private placement. There is little public information on their post-default status. Of the remaining 62 issuers, 24 have yet to enter into any court-administered bankruptcy proceedings, nor have they made any repayments, Fitch analysts found.

That means that a quarter of the issuers remained “in limbo” in terms of their repayment status, while the public has no knowledge of the post-default status of another quarter, according to the report.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
×