Hong Kong, June 28, 2018 -- Moody's Investors Service expects China's onshore funding
environment to remain challenging for low-rated and high-yield
issuers for the rest of 2018 because of continued regulatory action to
constrain the shadow banking sector.
"The authorities remain determined to eliminate previously less-regulated
credit growth in shadow banking and will continue to direct financial
institutions' off-balance sheet credit exposures to on-balance
sheet," says Nino Siu, a Moody's Vice President
and Senior Analyst.
"And even when they inject liquidity into the financial system,
such as lowering the deposit reserve ratio, we expect overall credit
growth not to be as large as in the past three years, and will be
mainly in traditional bank loans rather than unregulated credit products
in shadow banking," says Siu.
Moody's conclusions are contained in the June edition of its "Renminbi
Bond Monitor", which discusses the latest developments in
the RMB bond market.
"Default cases in recent months have also further dampened demand
for low-rated bonds in the onshore market. Moreover,
the offshore USD bond market, an alternative funding channel,
is not as accessible as in 2016 and 2017 for Chinese high-yield
issuers," says Ivan Chung, a Moody's Associate
Managing Director.
"Thus, low-rated onshore issuers will face an uphill
challenge in refinancing their onshore bonds in the next 12 months,"
says Chung.
Tightening onshore market liquidity, along with rising default cases,
in the first five months of 2018 has also widened credit spreads and increased
the cost of funds.
Moreover, new credit growth and any measures to inject liquidity
into the credit market will mainly benefit corporate issuers with stronger
credit profile.
However, issuers with weaker credit profile usually have difficulties
in borrowing bank loans and now can no longer -- as mentioned --
pursue financing via shadow banking products as in the past.
Total issuance in China's onshore bond market (i.e.
including corporate, financial institutions and government bonds)
continued to shrink and net issuance reached a low in Q1 2018 (since early
2015), against the backdrop of tightening liquidity and the rising
cost of funds. As of the end of Q1 2018, while total issuance
had increased year-on-year by 7% to RMB8.9
trillion, net issuance (i.e. gross issuance less bond
repayment amount) had dropped year-on-year by 36%
to RMB1.5 trillion only.
The number of delayed or cancelled onshore bonds had also hit a peak in
Q1 2018, compared to Q1 in previous years.
Subjects covered in the latest Renminbi Bond Monitor are:
• Low-rated issuers face a more challenging funding environment
as maturity season approaches in the onshore bond market
• Net issuance and funding accessibility decreases for low-rated
issuers
• Investment Funds -- China: Long-term trends are
positive, even if regulation slows short-term growth
• Renewable Energy -- China: Policies support renewable
sector's growth, but challenges ahead
• Government of China: Change in China's economic structure
is gathering pace, a credit positive
• Banks - China: Macro profile - Moderate +
• ABS - China: New supervisory structure for leasing
companies is credit positive
The report may also be found through Moody's topic page "China's trade-off:
Deleveraging and stability", available at http://www.moodys.com/chinarebalancing.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's trade-off include:
• ABS -- China: New supervisory structure for leasing
companies is credit positive
• Renewable Energy -- China: Policies support renewable
sector's growth, but challenges ahead
• Banks -- China: Smaller banks face continued funding
weakness as use of structured deposits grows
• Regional & Local Governments -- China: 2018 Debt
and Finances Update
• Life Insurance -- China: Improving product mix and stabilizing
assets risks drive change to stable outlook
• Government of China: Change in China's economic structure
is gathering pace, a credit positive
• Banks: China finalizes liquidity risk-management rules
for banks, a credit positive
• Regulated Electric & Gas Utilities: China's new
pricing mechanism for residential users is credit positive for the gas
sector
• Integrated Oil & Gas: China's natural gas pricing
mechanism reform is credit positive for suppliers
• Investment Funds -- China: Long-term trends are
positive, even if regulation slows short-term growth
Subscribers can read the full report at:
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1127367
NOTE TO JOURNALISTS ONLY: For more information, please call
one of our global press information hotlines: New York +1-212-553-0376,
London +44-20-7772-5456, Tokyo +813-5408-4110,
Hong Kong +852-3758-1350, Sydney +61-2-9270-8141,
Mexico City 001-888-779-5833, São Paulo
0800-891-2518, or Buenos Aires 0800-666-3506.
You can also email us at [email protected] or visit our
web site at www.moodys.com.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Ivan Chung
Associate Managing Director
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077