Two major Chinese borrowers – one already in default and one under pressure – missed the payment deadlines this month, highlighting the risks that accumulate in a credit market that has the largest number of bankruptcies ever recorded.

China Minsheng Investment Group Corp., a private investment group with interests in renewable energy and real estate, failed to return to bondholders it pledged to repay on February 1, according to people close to the file. And Wintime Energy Co., which went bankrupt last year, did not honor a restructured debt repayment plan last week, said separate people.

The developments are important because the two companies were large borrowers and their problems with access to financing suggest that the government's efforts to close the $ 11 trillion bond market failures do not benefit all businesses. If China Minsheng eventually fails, it could be alongside Wintime Energy as one of the biggest failures of China, with a debt of 232 billion yuan ($ 34.3 billion) as of June 30, according to a report of the rating agency.

"The expansion of Chinese companies in recent years has often been fueled by debt issues, usually short-term debt, but their investment cycles are generally longer-term," said Shen Chen, a partner of Shanghai Maoliang Investment Management LLP. "Recent failures show that companies are still struggling to recover their debt despite easing measures taken recently."

A lack of liquidity caused a record 119.6 billion yuan in local debt defaults in 2018. Although this figure is minimal compared to the Chinese economy or the Chinese debt stock it has caused a shockwave in a market where the government's inconsistent appetites for rescue and the dominance of fictitious financing can make it hard to tell who is on the hook for the losses. The default total will increase again this year, according to analysts.

Champion of the investment

China Minsheng Investment, based in Shanghai, failed to repay investors with a 3 billion yuan bond maturing on Jan. 29, and then promised to return their money three days late, reported Bloomberg News earlier. But that did not happen, said the people familiar with the subject. Chinese financial markets were closed last week for the lunar new year holiday, and calls to China Minsheng Investment's financial manager were unanswered on Monday.

The company, one of the biggest champions of private investment in China, was supported by 59 non-state companies and obtained an operating license in 2014, the government said in a prospectus. bond dating back to November. China Minsheng Investment totaled 232 billion yuan of debt and 310 billion yuan of assets as of June 30, according to Shanghai Brilliance Credit Rating & Investor Service Co.

Big Defaulter

At the same time, Wintime Energy told investors that it was still seeking financing to repay 20% of the principal on an outstanding bond of 3.8 billion yuan, which was due to be repaid on 6 February, said others. people close to the file, asking not to be named. as the information is private.

The miner was China's second largest default in 2018, unable to cope with a debt that had quadrupled in less than five years. Calls to the manager of Wintime Energy responsible for the disclosure of securities information remained unanswered.

China seeks to limit the impact of its deleveraging campaign by adding liquidity to the financial system and putting in place stimulus measures, such as increased infrastructure spending, a boon for indebted homeowners and local government borrowers . Although this has restored demand for some risky debts, the impact has been uneven.

According to ChinaBond data, the yield spread on AA rated 5-year notes (considered a "junk score" in China) still exceeds 300 basis points compared to the highest-rated peers, more than two times the level of the previous year.

Anne Zhang, Executive Director for Fixed Income, Currencies and Commodities at JPMorgan Private Bank, said: "The market clearly recognizes the differentiation of multiple credits, with access to refinancing remaining closed for some issuers, but widely open for others ". "Default values ​​will become more frequent but more idiosyncratic."

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