Two large Chinese borrowers missed payment deadlines this month, underscoring the risks piling up in a credit market that's witnessing the most company failures on record.
China Minsheng Investment Group Corp., a private investment group with interests in renewable energy and real estate, hasn't returned money to bondholders that it had pledged to repay on Feb. 1, according to people familiar with the matter. And Wintime Energy Co., which defaulted last year, didn't honor part of a restructured debt repayment plan last week, separate people said.
The developments are significant because both companies were big borrowers, and their problems accessing financing suggest that government efforts to smooth over cracks in the $11 trillion bond market aren't benefiting all firms. If China Minsheng ends up defaulting, it may rank alongside Wintime Energy as one of China's biggest failures, with 232 billion yuan ($34.3 billion) of debt as of June 30, according to a ratings agency report.
"Chinese corporations' expansion in the past few years has often been fueled by debt issuance, usually short-term borrowings, but their investment cycles are typically longer term," said Shen Chen, a partner at Shanghai Maoliang Investment Management. "The recent failures show that companies are still struggling to roll over their debt despite the recent easing measures."
A liquidity crunch spurred a record 119.6 billion yuan of defaults on local Chinese debt in 2018. While that number is tiny relative to China's economy or outstanding debt, it sent shockwaves through a market where inconsistent government appetite for bailouts and the prevalence of shadow financing can make it hard to tell who's on the hook for losses. The default total will swell again this year, according to analysts.