China Faces "Systemic Risk" From Debt Cross-Default "Chain Reaction", Top Central Bank Advisor Warns
Just days after China's "moment of reckoning" in the dollar bond market arrived, when China was rocked by not only the biggest dollar bond default in two decades but also the first default by a massive state-owned commodities trader and Global 500 company, when Tianjin's Tewoo Group announced the results of its "unprecedented" debt restructuring which saw a majority of its bondholders accepting heavy losses, and which according to rating agencies qualified as an event of default, last week a top adviser to China’s central bank warned of a possible "chain reaction" of defaults among the country’s thousands of local government financing vehicles after one of these entities nearly missed a payment this month.
Besides the record number of default in the local bond market and the recent groundbreaking default of the dollar bonds issued by the state-owned Tewoo, concern has grown in recent months over the vast accumulation of debt in LGFVs, especially after the near default of one such financing platform, Hohhot Economic and Technological Development Zone Investment Development Group, in the Chinese autonomous region of Inner Mongolia earlier this month.
To avoid a cascading collapse in confidence among China's creditors, Ma proposed one potential measure to allow for distressed LGFVs to be taken over by healthier one, very much similar to how a record number of China's small and medium banks were "resolved" in 2019, despite at least two bank runs being triggered last month as previously reported.
The comments by Ma, a former Deutsche Bank economist, come as concerns grow in China’s central government about rising systemic risk. At a high-level planning session in Beijing earlier this month, at which many of the next year’s economic challenges are discussed among senior officials, the avoidance of systemic risk was listed as a priority.
"At the meeting, China’s top policymakers stressed stable macro policy with flexible fine-tuning, and pledged to prevent systematic financial risks,” Mizuho Securities economist Serena Zhou said in a report to investors this month, noting that "such a pledge came the same day as Hohhot Economic and Technological Development Zone Investment Development Group, a LGFV 100 per cent owned by the Hohhot local government, reportedly missed its bond payment."
And while the Hohhot group's repayment deadline was eventually extended after the group failed to repay a 1 billion yuan ($142 million) privately placed bond earlier this month, the situation grabbed the attention of both creditors in other similar LGFV situations as well as analysts.
As the FT notes, China's LGFVs have been key drivers of economic growth in China since the mid-1990s, backing many of the local infrastructure projects that have boosted growth rates in recent years. But they are also closely connected to China’s shadow banking sector, making it difficult for central authorities to fully assess the risk connected to the groups.
Meanwhile, adding to Beijing's list of "default domino" default woes, in addition to rising fears about the stability of LGFVs, Bloomberg points out that the rising default tide is now impacting even one of China's wealthiest provinces, namely Shandong, where six privately owned companies have defaulted on their debt or come close to doing so in the last three months. With 68.1 billion yuan ($9.7 billion) in outstanding debt among those six companies alone, "the distress in Shandong has rattled even seasoned investors."
So to loosely paraphrase Ernest Hemingway, "How did you go bankrupt? Two ways: Gradually and then suddenly… and when you do, you take down all your friends down with you''.
That's precisely what China has in store for bondholders of its massive $40 trillion financial sector in the coming years.
rest at link
https://www.zerohedge.com/markets/china-faces-systemic-risk-debt-cross-default-chain-reaction-central-bank-top-advisor-warns
cap #3 is from last year but a good list to work from.
cap #4 is also last year… list of banks that delayed reporting results for 2018 FY.
chek'd trips
still the funniest copy pasta series ever.
yes, don't know bred # off-hand but it's been notable
ty anon, knew it had to be recent