"A Looming Wall Of Dollar Debt:" 2020 Could Be A Disastrous Year For China's Domestic Bond Market
This is one of the reasons that China, much as it would like to, can't take the Yuan to 8 - 9 to the buck.
What they'd gain in export competitiveness pales in comparison to the immediate increase in yuan needed to buy dollars to service and repay this debt.
And compared to the total amount of dollar denominated Chinese debt outstanding, this report is just scratching the surface.
See links below.
Via ZeroHedge:
New data compiled by Bloomberg, warns that 2020 could be the year of meltdowns in China's domestic bond market.
The report said, "a looming wall of dollar debt," issued by borrowers
who are experiencing rapid financial deterioration, might have extreme
difficulty in repaying $8.6 billion of offshore bonds coming due next
year that have 15% yields.
This equates to 40% of the total outstanding corporate dollar bonds
from China's most distressed companies comes to maturity right before
the 2020 US presidential election, and also, at a time when the global
economy could be in a trade recession.
This is a market where you want to go for safer bets
rather than be a hero," said Michel Lowy, chief executive officer at
Hong Kong-based SC Lowy, which specializes in fixed income. "We are on
the verge of a massive snowball effect," where defaults spur funds to
take money out of high-yield debt, driving up yields and making it all
the harder for firms to refinance, he said.
Wonnie Chu, managing director of fixed income at GaoTeng Global Asset
Management Ltd., revealed to Bloomberg that many of these companies
acquired cheap debt during 2017/18, the period of synchronized global
expansion.
Chu said a lot of the debt was issued with a "low-interest-rate not
comparable to the credit risk." She added that a full-blown shock will
likely be avoided but adds that stress will certainly be seen next year
among borrowers.
