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Last week's bumpy ride is getting wilder! Tsinghua Unigroup -- the chipmaker linked to China's top university -- defaulted on a 1.3 billion yuan bond after failing to win an extension. That's the second university-linked default this year as state-linked firms come under fire.
Unigroup's default follows a pick up in stress among state-linked firms -- once again testing assumptions about Beijing’s willingness to bail out these borrowers. Last week, the surprise default of state-owned coal mining firm dragged down other SOE bonds and financial stocks.
This could be a crucial moment for China's financial markets -- Beijing has long sought to introduce more market-let or risk-led approaches to its credit markets. Allowing SOE defaults is a (the?) next critical step. But it all still feels rather precarious.
BREAKING: The state-linked parent of BMW's joint venture partner in China, Brilliance Auto, has also announced it's defaulted on 6.5 billion yuan of debt.
https://www.chinabond.com.cn/cb/cn/ywcz/fxyfxdf/zqzl/qyz/qtggtz/20201116/155886973.shtml
https://www.chinabond.com.cn/cb/cn/ywcz/fxyfxdf/zqzl/qyz/qtggtz/20201116/155886973.shtml
What's more, Trump's ban on Chinese firms linked to the military is dragging on higher quality bonds with spreads on ChemChina climbing and other investment grade bonds under pressure.
Oh and today is ALSO the day China's kicked off the sale of a potential a Euro-denominated bond, one year on from a rare deal in this currency.
(And HSBC is one of the banks on the deal this time around -- more on @TheTerminal)
(And HSBC is one of the banks on the deal this time around -- more on @TheTerminal)
What does this all mean? (1) China's credit market is heating up and there are signs Beijing is willing to tolerate pick up in SOE defaults (2) That's not necessarily a bad thing -- China needs to allow defaults to allow investors are able to price in risk
