China junk bond sell-off enters new phase with record Fosun rout

A record sell-off in Fosun International’s dollar bonds is a sign that financial stress among China’s property developers is starting to spread to the country’s other weaker borrowers.  

The Shanghai-based conglomerate’s dollar notes lost 21 per cent last week, the most in a Bloomberg index of Chinese high-yield dollar bonds, after Moody’s Investors Service put the firm on review for a downgrade. Most of Fosun’s notes have continued to slump since Monday (Jun 20), despite an offer by the company to buy back some offshore debt. 

The steep losses in Fosun’s bonds, alongside a fresh sell-off in Macau’s casino operators, are pushing China’s junk dollar debt market into a new phase as broader risks in the world’s No 2 economy begin hitting companies outside the property sector. The pressure on Fosun also is a reminder of the heavy economic toll that a two-month Covid lockdown took on businesses in Shanghai. 

The selling in Fosun’s offshore bonds “is a reflection of broader wariness of potential downside in this current market environment, with many risks remaining unresolved in China and globally”, said Henry Loh, investment manager at abrdn Asia.

“I’d imagine that the aggressive downward spiral experienced in Chinese real estate remains very fresh in investors’ minds so that will likely be a factor in many investors’ reaction.”

Moody’s cited contagion risks from China’s real estate sector on Fosun’s property exposure. It also described Fosun’s liquidity as “very weak at the holding company level”. The conglomerate, co-founded by tycoon Guo Guangchang, has operations from pharmaceuticals to tourism and insurance. BLOOMBERG

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