Yields Top 22% as Covid-Zero Policy Stings China Dollar Bonds

China Credit Tracker

Fresh challenges are confronting Chinese borrowers in global debt markets after authorities doubled down on the nation’s Covid Zero policy.

High-yield dollar bonds from Chinese issuers are extending losses after dropping for a record eight straight months through April. Issuance has tumbled as global money managers balk at extending credit, with lockdowns weighing on the economy. Refinancing concerns are flaring as defaults mount and inflation drives rates up globally.

The focus remains on China’s offshore junk note market—dominated by property developers—after stress levels remained at their most elevated level in April, Bloomberg’s credit tracker shows. Yields have been rising again in recent weeks, exceeding 22%. On top of that, strengthening of the dollar has further increased the effective costs for borrowers to service foreign debt and kept issuance of high-yield dollar notes at a six-year low.

Investors are weighing the implications of a slowing economy as patience wanes for further details on prospective supportive measures. Rather than reiterating promises to shore up growth and financial markets, a recent Politburo meeting led by President Xi Jinping emphasized the nation would “exhaust all means” to eliminate Covid-19.

A high-profile default by China's fourth-largest developer, Sunac China Holdings Ltd., also risks spreading to other big real estate firms previously considered immune from a record wave of failures in the sector.

Home sales have been significantly affected by the recent Covid-19 outbreak in China, and that’s worsened the company’s liquidity constraints, Sunac said in a Thursday filing.

Provincial Breakdown

Defaults in Fujian and Hebei are the highest among provinces

Note: Map shows Mainland China's onshore market. Figures are in billion yuan. Source: Bloomberg

And across both local and offshore markets, borrowers looking to repay their upcoming debt obligations may have some reprieve as maturity payments decline--at least in coming weeks.

Meeting Deadlines

Monthly maturities for Chinese firms that could struggle to repay debt

Note: Figures are in billion yuan. Source: Bloomberg

Issuers need to pay only $1.5 billion of junk dollar bonds coming due this month, a respite before a combined $12.1 billion in June and July. In the domestic market, firms facing repayment pressure have just 3.9 billion yuan ($580 million) of local securities due through June, compared with 6.8 billion yuan in July.

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