Bloomberg: China’s $740 Billion Offshore Credit Rally Stalls

Distressed Chinese developers are moving forward with restructuring plans, but it’s failing to help sustain a rebound when it comes to dollar bonds from the country’s issuers. Alice Huang reports on Bloomberg Television.
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Transcript

So why have we seen the credit market in China really stalled and how are we seeing that being reflected in the latest Bloomberg tracking data? Yeah, from November last year, really, we’ve seen three months of a spectacular rally and most of that was driven by the policy support coming from the country’s

Government regulators for the property sector, which is really an important part for the country’s offshore dollar bond market. And I think three months later, we’re just starting to see some of those effects wear off a little bit, not least because some of those policies

Will need some time to take into effect. And also among the few surviving developers, some of them are really still struggling to keep up with their offshore payment schedule. So I think the market was reminded of all of that liquidity struggle yet again.

So all of that has led to a drop of one point six percent in Chinese dollar bond market in February. And also there’s that macro backdrop where though all of this was happening before the SVP saga and the market was

Pricing in a more hawkish Fed. So really there was a global pullback as well in other credit markets as well as some other assets. And that reflected in our tracker data is suggesting that the stress level is rising again for the offshore credit market.

So the stress level has risen from level 2, which is the lowest since we started compiling these data to level four in last month. And that’s how much progress or we’re seeing in developers restructuring. And how is this helping or perhaps not doing much to boost sentiment at this

Point? Yeah, you’re absolutely right. There has been a lot of progress that we’re seeing. So a few big developers are finally showing some of those progress months or even more than a year after their initial default. So that includes Fantasia. Some remember that the developer, Steve,

Fell in September 2013. We really shocked the market and was followed by a record wave of defaults. So that developer has signed restructuring support agreements with some of its major bondholders. And other bigger names like Sue Nag is also preparing similar agreements to be signed with its major bondholders and names like Logan.

It started circulating a debt framework to some holders, and CFE, which is a more recent defaulter, has also announced some preliminary framework. But all of that so far has not been sufficient to bring back the market rally that we’ve seen in previous months.

I think due to a few reasons. Number one is this has really been limited to a few developers only still in the markets and pleased to see more others joining in. And another is it’s still a long time, maybe until holders can investors can get their money back from seeing

Proposal to negotiation to signing it and then getting the court approved. That’s still going to take a little while, not to mention for some of the proposals that we’ve seen so far, the debt maturity profile is being stretched out for as long as seven years. And in everyone’s case, that’s 12 years.

So really, it’s a long time until people can get their money back. And also they just need to see more details as well from a fuller proposals. They need to see cash flow projections and things like that to really be able to determine their recovery value.

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