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China State Firms Once Deemed ‘Safe’ Now Rocked by Defaults

  • State-linked bonds can be ‘treacherous’ for some: CIO
  • Investors to increasingly look at firms’ individual health
Coal Production In China

Photographer: Nelson Ching/Bloomberg

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Rising defaults by China’s state firms are showing the need for bond investors to be much savvier about those borrowers -- no easy feat in a country where government decisions and business operations lack transparency.

Five state-linked companies -- from a coal miner to a top chipmaker and an auto firm with ties to BMW AG -- have defaulted for the first time in the onshore bond market this year. That’s the most since 2016. In the secondary market, the average yield of more than 700 riskier bonds of local state-owned enterprises jumped to 17% from 13.4% after a payment failure by Yongcheng Coal & Electricity Holding Group Co., Bloomberg-compiled data show. Last month’s defaults helped send debt issuance costs to a 2020 high for top-rated SOEs, as sovereign bond yields also climbed.