China
China’s efforts to curb predatory lending to the country’s small and medium-sized enterprises could harm the sector rather than helping it by cutting off access to crucial finance, analysts have warned, the Financial Times reported. Multiple shadow banking lenders have told the Financial Times they would stop servicing medium to high-risk borrowers after the Supreme Court announced a plan last month to “significantly” cut the interest rate shadow banks could charge.
British Steel’s Chinese owner has had its bid to acquire a factory in France rejected by a court as concerns grow in some European capitals about companies from the Asian superpower snapping up assets, the Financial Times reported. Jingye Group, which saved the UK’s second-largest steelmaker from bankruptcy earlier this year, was attempting to wrest control of a small mill in north-east France that belonged to British Steel.
The Pacific island nation of Tonga has asked Beijing to restructure its large bilateral debt load, the government said on Thursday, as the pandemic upends the region’s tourism revenues and an onerous Chinese loan repayment schedule looms, Reuters reported. Tonga is one of the biggest Chinese debtors in the South Pacific, with its financial reliance dating back to loans taken more than a decade ago to rebuild its capital, Nuku’alofa, after riots. The small economy, largely dependent on external aid and remittances from Tongans living abroad, has since taken out additional loans.
China’s cash-strapped small lenders are expanding their pile of the riskiest kind of bank debt to shore up their capital levels, bracing against an economic slowdown and rising loan defaults, Bloomberg News reported. A total of 19 banks have sold 339.6 billion yuan ($48.5 billion) perpetual bonds, high-yielding subordinated bonds with no maturity dates, as of July 10 this year, according to data compiled by Bloomberg. Smaller lenders including Chongqing Three Gorges Bank Co., Bank of Rizhao Co., and Huarong Xiangjiang Bank Corp. accounted for more than 70% of the issuance.
China has avoided a recession, but debt problems are piling up. Output rose 3.2% year-on-year in the three months to June, following last quarter’s record contraction. Investment still looks tepid, employers are shedding jobs, and retail is anaemic, Reuters reported. That means more bad loans. Unfortunately, the country is running low on distressed debt investors. The pandemic has forced Beijing to prop up sectors, including exports and tourism, where demand has been hit hard and unemployment rising.
Chinese investors who claim to trace their lineage to a renowned fourth-century calligrapher are fighting to retain control of a 256-year-old French crystal glassmaker, following a series of defaults and a private credit deal gone wrong, the Financial Times reported. The troubles for Beijing-based Fortune Fountain Capital and its struggle to hold on to Baccarat Crystal highlight the problems Chinese investors have run into after taking on excessive leverage to buy European brands — sometimes through private credit deals at lending rates far higher than those of bank loans.
Refinancing pressure is mounting at China’s industrial firms following unprecedented pandemic-induced shocks to the sector and a dearth of bond issuance in the past three months, Bloomberg News reported. Offshore bond sales from high-yield energy and other industrial companies hit a two-year low in the first half of 2020, with no sales from April to June, according to Bloomberg-compiled data. It couldn’t have come at a worse time for them as $3.1 billion of bonds, or more than a quarter of their debt, need to be repaid or refinanced over the next 12 months, the data show.
An investigation into the accounting misdeeds at Luckin Coffee Inc. has concluded that the company’s chairman knew—or should have known—about the fabricated transactions that inflated the Chinese coffee chain’s sales last year, the Wall Street Journal reported. A report detailing the internal probe also said that Charles Lu, Luckin’s co-founder and chairman, didn’t fully cooperate with the investigation. The monthslong probe was conducted by a special committee of Luckin’s board with the assistance of law firm Kirkland & Ellis LLP.