China’s Hot Convertibles Market on Alert for First Default
- Huifeng may be unable to repay as put-option trigger looms
- Investors also face risk from firms buying back bonds early
Concern that China may soon witness its first convertible-bond default is drawing attention to just how speculative the market has become.
The Shenzhen Stock Exchange suspended trading in Jiangsu Huifeng Bio Agriculture Co.’s bond in late April after the company reported its second consecutive year of losses. Jiangsu Huifeng warned in an April 29 exchange filing that it may not be able to pay investors should a large proportion of the notes, set to mature in 2022, fail to convert into equity when they come due. A decision on its listing status is expected no later than May 22.
Adding to the nervousness is a put option that allows investors to demand early repayment on the bond -- a clause that’s triggered if the stock trades below a certain level for 30 consecutive trading days. Thursday was the 15th day.