Asia

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, Bloomberg News reported. 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.

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In a short Twitter thread last month, Olivier Blanchard, former chief economist of the IMF and past president of the American Economic Association, reassessed how the economic effects of the pandemic had played out compared with what he had expected, the Financial Times reported. One striking observation was: “I expected a lot of inefficient bankruptcies, due to high debt rather than lack of viability post covid. This . . . does not seem to be the case. The proportion of low productivity firms in bankruptcies appears to be roughly the same as usual.” Blanchard is, of course, right.

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The shares of Chinese property developers have been a short seller’s nightmare for more than a decade. Nothing seemed able to dent the rally. That has now begun to change, the Financial Times reported in a commentary. Superficially, October was good for Chinese real estate. A rebound in activity pushed new home sales by floor area to their highest levels in recent months. Investment rose 13 per cent while property sales jumped 15 per cent. New construction starts grew 3.5 per cent, compared with a decline in the previous month.

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AirAsia X Bhd expects the outcome of its ongoing scheme of arrangement under its debt restructuring exercise to inject fresh equity will only be known by the end of June next year, The Edge Markets reported. The long-haul budget airline said this when announcing to Bursa Malaysia today that it was changing its financial year-end to June 30, 2021, from Dec 31, 2020. AirAsia X said the outcome would not be known by this month so the basis of preparation of its audited financial statements and audit opinion (AFS) was uncertain and the AFS would be of limited value to shareholders.

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Chinese industrial activity has snapped back to pre-coronavirus growth levels, with factory surveys hitting multi-year highs in November, but the headline expansion masks struggles for smaller firms and looming pressures for exporters, Reuters reported. Readings from the official and Caixin’s Purchasing Managers Indexes hit three- and 10-year highs respectively last month, a reflection of the industrial sector’s strong overall recovery. Official data also shows industrial profits for large firms grew at their fastest pace since 2017 in October.

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Bankruptcy Is Exactly What China Needs

As debt defaults for state-owned enterprises in China rise, international investors find themselves in what for most is a new place: Chinese bankruptcy courts, Bloomberg News reported in a commentary. That may be just the right venue for them, debtors and regulators to meet and take a crucial step toward a better functioning economy. Investors have been spending years to recover their money out of court, but China’s bankruptcy law has now gained enough critical mass to test in modern markets.

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Shares of Evergrande Property Services fell marginally on their Hong Kong debut on Wednesday, shedding initial gains as the spinoff of China’s second-largest property developer struggled to shake off worries about debt and competition, Reuters reported. Concerns about the financial health of its parent, China Evergrande Group, have clouded Hong Kong’s third-largest listing of the year, with China’s most indebted developer planning to use half the $1.8 billion raised for its own debt repayment.

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China’s credit rating agencies are standing by their triple A scores for troubled state-owned enterprises, even as a series of defaults reverberates through the country’s $4tn corporate debt market, the Financial Times reported. Just five Chinese companies out of more than 5,000 have been downgraded to below double A ratings by domestic rating agencies since Yongcheng Coal and Electricity Holding Group, one of the country’s largest coal groups, kicked off a spate of defaults last month, according to data provider Wind.

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International investors have cried foul over the sale of an insolvent finance company in India due to concerns surrounding the auction process, casting doubt on the effectiveness of the country’s overhauled bankruptcy code, the Finanical Times reported. The controversy stems from the auction of shadow lender Dewan Housing Finance Limited (DHFL), a company with about $14bn of debt that was taken over last year by India’s central bank, in a process widely viewed as a test of new bankruptcy rules brought in four years ago.

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China’s Tianqi Lithium Corp said on Monday it had signed a letter with a syndicate of banks to extend by a month the maturity date on $1.884 billion of loans that were due for repayment at the end of November, Reuters reported. Tianqi, one of the world’s top producers of lithium chemicals used in electric-vehicle batteries, had repeatedly said its operations could be severely impacted if it did not repay the money, which was used to acquire a 23.8% stake in Chilean miner SQM in 2018, by the due date.

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