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Announcement:

Moody's: Reports of another Chinese bond default won't affect rated corporates

 The document has been translated in other languages

03 Apr 2014

Hong Kong, April 03, 2014 -- Moody's Investors Service says the reported default on privately placed bonds issued by Xuzhou Zhongsen Tonghao New Board Company (unrated), the second reported bond default by a Chinese company in less than a month, will not reduce the ability of rated Mainland non-financial companies to obtain funding.

"Most of the Chinese companies rated by Moody's will maintain access to multiple funding sources and Moody's sees little effect from any tightening that may occur in the onshore bond market following the defaults," says Kai Hu, a Moody's Vice President -- Senior Credit Officer.

"Many of the rated companies, which have large exposure to the onshore bond market, are state-owned enterprises (SOEs), and we expect the government will continue to support them even as it allows struggling small, private enterprises to collapse," Hu says.

Xuzhou Zhongsen Tonghao New Board Company, which manufactures construction materials, has missed an interest payment on a privately placed bonds, according to reports from international and domestic media outlets on 1 and 2 April. One Chinese news organization said on 2 April that the bond guarantor will honor the principal repayments to bondholders.

The reported default comes less than a month after solar cell manufacturer Shanghai Chaori Solar Energy Science & Technology Co. (unrated) failed to make the full RMB89.8 million interest payment due 7 March on its outstanding RMB1 billion corporate bond. It was the first default of a publicly traded bond in China's onshore market since 1997.

And Zhejiang Xingrun Real Estate Company (unrated), a real estate developer based in Ningbo, Zhejiang Province, collapsed last month because it was unable to service more than RMB3.5 billion in outstanding debt, most of which was loans from domestic banks, according to media reports.

"The reports of this latest default highlight the challenges facing small- and medium-sized companies as China's economic growth slows and the government allows market forces to play a larger role in the economy," says Hu.

"The government and state-owned banks did not step in to bail out the defaulting companies, as they have done for other companies in the past," says Hu.

"The lack of intervention is consistent with the central Chinese government's adoption of more market-oriented policies, which include increased tolerance for corporate bond defaults, as it reforms the country's financial markets," says Hu.

"We believe the defaults will cause lenders to look more closely at the credit quality of companies," says Hu.

Kai Hu
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service (Beijing) Ltd.
10th Floor, International Financial Centre C
No. 156, Fuxingmen Nei Street
Beijing 100031
P.R. China
Telephone:+86-10 6642 8968

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
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24/F One Pacific Place
88 Queensway
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China (Hong Kong S.A.R.)
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Moody's: Reports of another Chinese bond default won't affect rated corporates
No Related Data.
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