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| Junk Bond Default a Sign of China’s Slowing Growth | Junk Bond Default a Sign of China’s Slowing Growth |
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| HONG KONG — China’s nascent market for domestic junk bonds has had its first default, a report in the state-run media said on Tuesday, just weeks after the country experienced its first default in the domestic corporate bond market. | |
| In a fresh sign that China’s slowing economic growth is causing real pain for the country’s companies and investors, Xuzhou Zhongsen Tonghao New Board Company, a manufacturer of construction materials, has been unable to meet the interest payments on 180 million renminbi, or $29 million, worth of bonds it sold last year, according to a report Tuesday in The 21st Century Business Herald, a financial newspaper based in Guangzhou. | In a fresh sign that China’s slowing economic growth is causing real pain for the country’s companies and investors, Xuzhou Zhongsen Tonghao New Board Company, a manufacturer of construction materials, has been unable to meet the interest payments on 180 million renminbi, or $29 million, worth of bonds it sold last year, according to a report Tuesday in The 21st Century Business Herald, a financial newspaper based in Guangzhou. |
| China established its domestic high-yield bond market two years ago in an effort to open a new financing channel for small and medium-size enterprises. Since then, dozens of companies have sold bonds via private placements to local investors. Such bonds, often referred to as junk because of the creditworthiness of the companies that sell them, pay higher yields to reward investors for the greater risk they take on. | China established its domestic high-yield bond market two years ago in an effort to open a new financing channel for small and medium-size enterprises. Since then, dozens of companies have sold bonds via private placements to local investors. Such bonds, often referred to as junk because of the creditworthiness of the companies that sell them, pay higher yields to reward investors for the greater risk they take on. |
| The default, which took place Friday, came after the company ran into financial difficulty and was unable to make a payment of 18 million renminbi on its high-yield bonds, which pay 10 percent interest annually, according to the report. | The default, which took place Friday, came after the company ran into financial difficulty and was unable to make a payment of 18 million renminbi on its high-yield bonds, which pay 10 percent interest annually, according to the report. |
| Bondholders, who were not named in the article, are unlikely to recoup the payment or principal after the guarantor of the bonds, the Sino-Capital Guaranty Trust Company, said it would not offer compensation, citing restructuring problems at Xuzhou Zhongsen, according to the report. | Bondholders, who were not named in the article, are unlikely to recoup the payment or principal after the guarantor of the bonds, the Sino-Capital Guaranty Trust Company, said it would not offer compensation, citing restructuring problems at Xuzhou Zhongsen, according to the report. |
| Xuzhou Zhongsen, based in the coastal province of Jiangsu, did not reply to emails seeking comment on Tuesday. Phone calls to Sino-Capital Guaranty went unanswered. | Xuzhou Zhongsen, based in the coastal province of Jiangsu, did not reply to emails seeking comment on Tuesday. Phone calls to Sino-Capital Guaranty went unanswered. |
| The default at Xuzhou Zhongsen is the second in less than a month in China’s onshore corporate bond market, which is worth about 8.5 trillion renminbi. On March 7, the Shanghai Chaori Solar Energy Science & Technology Company, a maker of solar cells and panels, defaulted after failing to make an annual interest payment of 89.8 million renminbi on a bond of 1 billion renminbi. | The default at Xuzhou Zhongsen is the second in less than a month in China’s onshore corporate bond market, which is worth about 8.5 trillion renminbi. On March 7, the Shanghai Chaori Solar Energy Science & Technology Company, a maker of solar cells and panels, defaulted after failing to make an annual interest payment of 89.8 million renminbi on a bond of 1 billion renminbi. |
| Also last month, the Zhejiang Xingrun Real Estate Company, a small property developer in the coastal city of Ningbo, collapsed after being unable to repay more than 3.5 billion renminbi in debt. | Also last month, the Zhejiang Xingrun Real Estate Company, a small property developer in the coastal city of Ningbo, collapsed after being unable to repay more than 3.5 billion renminbi in debt. |
| These new signs of corporate stress are emerging as China’s economic growth decelerates to its slowest pace in more than a decade. On Tuesday, two surveys showed that China’s manufacturing sector continues to struggle with weak output. | These new signs of corporate stress are emerging as China’s economic growth decelerates to its slowest pace in more than a decade. On Tuesday, two surveys showed that China’s manufacturing sector continues to struggle with weak output. |
| A purchasing managers’ index published by HSBC and Markit fell to an eight-month low of 48 points in March from the February final reading of 48.5. A separate, official index published by the national statistics agency, which is more heavily geared toward larger, state-owned enterprises, showed a reading of 50.3 in March, up slightly from 50.2 in February. A result over 50 indicates manufacturing is expanding, while a reading under 50 signals contraction. | A purchasing managers’ index published by HSBC and Markit fell to an eight-month low of 48 points in March from the February final reading of 48.5. A separate, official index published by the national statistics agency, which is more heavily geared toward larger, state-owned enterprises, showed a reading of 50.3 in March, up slightly from 50.2 in February. A result over 50 indicates manufacturing is expanding, while a reading under 50 signals contraction. |