China default storm brewing as record junk debt comes due

[SHANGHAI] A default storm is brewing for China's lower-rated corporate bonds with a record amount maturing just as borrowing costs surge.

Regulators are curbing leverage, pushing up the cost of capital and adding to challenges for weaker borrowers, according to China Citic Bank Corp., a unit of the nation's largest investment conglomerate. On Jan 16 alone, two companies missed payments. About 29 notes defaulted last year, up from seven in 2015.

"Bond issuers are facing huge redemption pressure," said Meng Xiangjuan, an analyst at Shenwan Hongyuan Group Co in Shanghai. "Investors should watch out for risks."

About 211 billion yuan (S$44.2 billion) of company notes rated AA or lower, often considered junk in the onshore market, will mature in 2017, up from 155 billion yuan last year, according to Bloomberg data.

Bond issuance in December by Chinese firms plunged to 205 billion yuan less than the amount of notes they had to repay that month, the lowest on record, central bank data show.

BLOOMBERG