China defaults prompt issuers to pull 34.1b yuan of bond sales

[BEIJING] Chinese companies canceled almost four times the amount of bond offerings in April compared with a year earlier, as recent defaults by state-owned enterprises increased financing costs.

At least 35 Chinese firms postponed or scrapped 34.1 billion yuan (S$7.2 billion) of planned note sales through April 13, compared with nine companies pulling 12.4 billion yuan a year ago, data compiled by Bloomberg show. About half of the cancellations took place this week after state-owned China Railway Materials Co halted its bond trading Monday.

The surge in scrapped offerings reflects growing concern about default risks amid the worst economic slowdown in a quarter century. Yields on five-year AA- rated local corporate notes have jumped 20 basis points this month, set for the biggest increase in 13 months. Shanxi Jincheng Anthracite Mining Group Co canceled a 2 billion yuan bond sale Wednesday on market volatility and Shandong Heavy Industry Group Co pulled an offering of 1 billion yuan of notes on Tuesday as it was undersubscribed.

"Credit risk is spiking with recent defaults so the market is in a panic," said Ji Weijie, a credit analyst at China Securities Co in Beijing. "No one wants to buy low-rated bonds right now. The China Railway Materials incident has had the biggest impact on the market recently because the company has a high rating of AA+ and it is completely state owned."

China Railway Materials said Wednesday it's seeking to restructure its debt, raising the risk of another default by a state-owned enterprise after Baoding Tianwei Group Co. last year became the first government-backed company to renege on onshore bonds. The company halted trading of a combined 16.8 billion yuan of bonds. Sinosteel Co postponed a debt payment earlier this year.

BLOOMBERG