Chinese markets unfazed by prospects of Huatong bond default
Building firm says it may not repay a 400m yuan debt due this week, an event that has caused less concern than Chaori Solar's missed payment
What a difference four months makes. In early March, Shanghai Chaori Solar Energy Science & Technology said it was unable to cover 89.8 million yuan (HK$113.7 million) in interest payments, triggering the mainland's first domestic bond default and creating a minor panic.
Bank of America Merrill Lynch strategist David Cui described the event as a "Bear Stearns moment". Issuers pulled deals and the mainland's high-yield offshore property bond market went into a one-month hiatus.
Last week, the mainland got word of its second likely domestic bond default when Huatong Road & Bridge said it may not repay a 400 million yuan debt that comes due this week.
This impending default is arguably more serious than Chaori's. Chaori just defaulted on interest, whereas Huatong is threatening non-payment of interest and principal. The issuer is also clearly identified with the property sector, which is a mainstay of the mainland's offshore market, and one dogged by longstanding investor concerns.
If [banks] handle it efficiently, regulators will let more defaults happen
The firm makes just over half its revenues from construction, and 15 per cent of revenues comes directly from property development. It also gets 15 per cent from coal mining, a sector even more stressed than property.
