China Default Angst Flares After Rare Case With Junk Bond
- Jilin Forest says won’t exercise call option on perpetual bond
- That makes it the first junk issuer to give up such a right
Photographer: Taylor Weidman/Bloomberg
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A rare event in a corner of China’s credit market is fueling concern that more defaults are looming, adding to strains sparked by the government’s crackdown on leverage.
A timber company in the country’s northeast decided this week not to pay off perpetual bonds despite having an option to do so. That was a first for a junk-rated issuer of such securities in China. Firms that raise money with perpetuals never have to pay off the principal, in theory. But in practice, the bonds usually have coupon rates that increase at set dates along with options letting issuers repay the securities to avoid the escalating interest charges.