AAA bonds tumble amid default fears in China

Business | Bloomberg 25 Nov 2020

A string of defaults by Chinese state-owned companies has sent shockwaves across the world's second-largest credit market.

But some bonds have fared much worse than others as investors clamber to avoid the next potential blowup. Among the most notable losers: notes issued by Pingdingshan Tianan Coal Mining, Jizhong Energy, Tianjin TEDA Investment and Yunnan Health and Culture Tourism.

While none of the firms have missed debt payments, and all four are rated AAA by Chinese domestic ratings firms, their bonds have tumbled by at least 14 percent since November 10. That's when a surprise default by a state-owned Chinese coal producer cast fresh doubt on the implicit guarantees that have long underpinned government-backed borrowers.

"Most of the onshore bonds hit hardest this time share a common symptom: their profitability has lagged far behind their debt growth," said Li Yunfei, credit analyst at Pacific Securities. "Repricing of some onshore bonds, though it occurred abruptly and quickly, is a rational outcome of the recent defaults."

Pingdingshan Tianan Coal said in a written reply to Bloomberg News that the company was aware of declines in some of its bonds, but declined to comment further. Jizhong Energy and Yunnan Health and Culture Tourism didn't answer calls or respond to an email seeking comment.

An official in charge of Tianjin Teda Investment's bond issuance department declined to comment when reached by phone.

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