China Faces More Bond Market Risks After Chaori, CICC Says

China will face more risks in its bond market following the country’s first default on onshore debt, according to China International Capital Corp.

“Looking at the second quarter, we think the worst of credit risk is far from over,” bond analysts Ji Jiangfan, Zhang Li, Xu Yan and Wang Zhifei at CICC wrote in a March 14 report. “Lower-rated bonds’ credit premiums may stay at high levels or rise to new highs.”

The collapse of developer Zhejiang Xingrun Real Estate Co., which government officials said yesterday doesn’t have enough cash to repay 3.5 billion yuan ($566 million) of debt, is adding to concerns nonpayments may spread. CICC flagged 12 companies with outstanding onshore bonds in “great need” of more scrutiny after changes in the credit profiles of the issuers, including Sinovel Wind Group Co. (601558) and Baoding Tianwei Baobian Electric Co. (600500)

Premier Li Keqiang said last week that nonpayment may be unavoidable in some cases. His remarks came after Shanghai Chaori Solar Energy Science & Technology Co. failed to make a full coupon payment on March 7 in the first default in China’s onshore bond market.

CICC also cited Shenyang Ingenious Development Co. (000511), which changed its name to Ingenious Ene-Carbon New Materials Co. in January 2013, and Guangzhou Donghua Enterprise Co. (600393) as companies with limited cash flow and large debt repayments.

Collapse Fallout

Stocks and bonds issued by some Chinese real estate companies extended a slump after the news about Zhejiang Xingrun Real Estate. Multiple calls to the chairman’s office and financial department at Zhejiang Xingrun weren’t answered today.

The 8.75 percent notes due 2018 sold by Evergrande Real Estate Group Ltd., the nation’s fourth-largest developer by market value, fell 1 cent on the dollar today, sending the yield to 10.562 percent, the highest on record, DBS Bank Ltd. prices show. The yield on Agile Property Holdings Ltd.’s February 2017 notes jumped 20 basis points to 7.459 percent, the highest since they were sold last month, according to Australia & New Zealand Banking Group Ltd. prices.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Andrew Monahan, Ken McCallum

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