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Chinese Bond Defaults Seen Rising as Borrowing Costs Climb 

December 29, 2015

Bloomberg News

Chinese corporate defaults will likely spread next year as borrowing costs climb, financial companies surveyed by Bloomberg said.

All 22 bond traders, analysts and others surveyed forecast China’s corporate default rates will rise in 2016, while over 70 percent expect the extra yield on corporate notes to increase. The premium on five-year AA rated company securities over government notes has risen to 173 basis points after plunging to an eight-year low of 169.2 basis points last month.

More firms in China are struggling to repay debt amid the worst economic slowdown in a quarter century. The number of listed companies with more debt than equity has jumped to 913 from 705 in 2007, according to data compiled by Bloomberg. Three Chinese manufacturers said last week that they lack funds to repay bonds due this month. Earlier in December, pig iron producer Sichuan Shengda Group Ltd. became at least the seventh Chinese firm to renege on local debt obligations this year.

“There have been quite a number of bond defaults recently and defaults will become normal in the near future,” according to a Dec. 24 research note from Hua Chuang Securities Co. written by analysts led by Qu Qing. Read more


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