China Corporate Debt to Overtake U.S. Within Two Years, S&P Says

Chinese corporate borrowing will probably exceed that of U.S. companies within the next two years, according to Standard & Poor’s.

Non-financial institutions from the world’s second-largest economy will need $18 trillion of debt during the five years ending 2017, the ratings company said in a report yesterday. That’s 34 percent of the $53 trillion in bonds and loans S&P estimates will be sought globally and compares with $13 trillion forecast for U.S. companies.

Chinese and Hong Kong borrowers sold $41.2 billion of U.S. dollar-denominated bonds since December, the busiest start to a year on record, according to data compiled by Bloomberg. Cnooc Ltd., the nation’s biggest offshore energy explorer, raised $4 billion this month with the largest offering out of Asia in a decade, as it looks to replace part of a loan used to acquire Canada’s Nexen Inc.

“High levels of investment, primarily in manufacturing, real estate, and infrastructure, have supported the country’s strong economic growth rate, particularly over the past five years - and credit is fueling this investment,” S&P said in the report. “While China is now on a lower growth trajectory than in the prior decade, the trajectory is still very high by global standards.”

China’s economic expansion unexpectedly slowed to 7.7 percent last quarter from a year earlier, losing momentum from the 7.9 percent expansion in the previous three months, according to the statistics bureau.

Debt Piles

China’s risk of a growth correction is the highest among 32 economies surveyed because the nation’s investments are less productive, S&P wrote in the report. The country’s outstanding corporate debt will overtake that of the U.S. in 2014 if it swells at 1.2 times the pace of nominal gross domestic product growth, or in 2015 if the increase matches GDP, S&P said.

Companies across the Asia-Pacific region will need $27 trillion of debt in the five-year period, borrowers in the euro zone and the U.K. will seek $10 trillion and companies in Latin America will raise $1.4 trillion, according to the report. Banks and bond investors will probably be able to accommodate the debt demands, S&P said.

China will need more than $8 trillion for refinancing during the five years, accounting for half of such needs in the Asia-Pacific region, according to the estimates.

Borrowers from Hong Kong and China have sold seven times more bonds to repay existing debt this year than in the first five months of 2012, data compiled by Bloomberg show. Bright Food Group Co., which has operations from dairy to wine, this week issued $500 million of securities maturing May 2018, according to data compiled by Bloomberg. The company will use the funds to repay financing for its acquisition of British cereal maker Weetabix Ltd., Moody’s Investors Service said in a report on May 7.

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