News

Dismay as China prevents first SOE default

Chinese factory workersFund managers who applauded what they thought was the first default of a Chinese state-owned enterprise (SOE) were left dismayed by reports of a last-minute bailout.

Last week, Baoding Tianwei Group, a power equipment manufacturer, said it was unable to pay interest on bonds issued in 2011.

Fund managers such as Teresa Kong of Matthews Asia applauded the apparent default, saying it would help instil greater market discipline and better capital allocation in future.

"I have argued in the past – and continue to believe – that defaults are a necessary evil," she said in a statement.

However, mainland Chinese media are reporting that China Construction Bank, which underwrote and invested in Baoding Tianwei Group's bonds, will provide undisclosed loans to help the firm meet its payments.

Caixin News, which reported the bailout, said China Construction Bank's loan was coordinated by China's central bank.

The bailout seems to support a common belief that bonds issue by Chinese state-owned enterprises carry an implicit guarantee from the state.

"This perception of implicit state support has arguably caused the market to systematically under-price the debt of SOEs relative to their private counterparts, all else being equal," said Kong in her note. "Just like other goods priced too cheaply, demand goes up, causing SOEs to take on too much leverage."

©2015 funds global asia

Sponsored Profiles

Sponsored feature: Asset allocators – How do you track your decisions?

Apr 06, 2020

Mark Barry, Head of Asset Allocation at Milestone Group, explores how a simple question can highlight opportunities to automate and streamline your asset allocation investment process.

Sponsored feature: How is DLT changing the global securities services landscape?

Oct 17, 2019

By Jeslyn Tan, global head of product management, securities services, at Deutsche Bank

Sponsored feature: A new base for fund distribution

Oct 16, 2019

To get the most value out of the digitisation of investment fund distribution, a blockchain-based infrastructure is fundamental. By Olivier Portenseigne, Managing Director and Chief Commercial Officer, Fundsquare.

Sponsored profile: Bridging the gap

Mar 11, 2019

Private equity is a core part of the business for Caceis’ Hong Kong office, which looks after clients in China and Europe. David Li, chief executive officer, explains why private equity enjoys strong client demand and how it is being used to fund China’s international infrastructure ambitions.

Executive Interviews

Executive interview: Understanding geographies

Apr 06, 2020

Margaret Harwood-Jones, co-head financing and securities services at Standard Chartered, shares her insights on platform standardisation, opportunities in Asia and regulatory change to encourage...

Executive interview: ‘Bull markets don’t die of old age’

Dec 12, 2019

Having a balanced portfolio in the midst of the longest expansion in history is an investment imperative, Chris Alderson, co-head of global equity and head of international equity at T Rowe Price...

Roundtables

Hong Kong roundtable: A ‘fragile Goldilocks situation’

Apr 06, 2020

With the global economy at a crossroads, our panel of experts share their thoughts on the market conditions, geopolitical volatility and growth opportunities. Chaired by Romil Patel in Hong Kong.

Singapore roundtable: A horizon to hold long-term assets

Dec 12, 2019

Panellists discuss the geopolitical fractures concerning asset owners, Singapore as a hub for fintech start-ups and why it makes sense to raise capital from a Variable Capital Company (VCC). Chaired by Romil Patel in Singapore.