Tuesday, October 14, 2014

Bloomberg: Default Risk on China Credit

One of the key signposts we watch here are any signs of trouble in China since trouble anywhere can lead to trouble everywhere. This Bloomberg article notes some possible coming problems with debt in China.

"Rating companies say the risk of defaults in China has risen as Premier Li Keqiang pares implicit guarantees for local-government financing vehicles."

"The yield premium over the sovereign for three-year AA corporate bonds, the most common grade for LGFVs, widened 21 basis points from last month’s four-year low to 198 basis points on Oct. 9. The State Council said Oct. 2 that the finance arms can no longer raise funds for local authorities, and that the governments have no obligation to repay debt that wasn’t raised to fund public projects. China International Capital Corp. predicts higher yields for new sales, while China Lianhe Credit Rating Co., a Fitch Ratings joint venture, says it can’t rule out defaults."

. . . . . . . .

“These steps show the central government is really serious about handling the debt,” said Zhang Yingjie, Beijing-based deputy general manager of research at China Chengxin International Credit Rating Co., a Moody’s Investors Service joint venture.“Sovereign credit was overdrawn in an opaque financing system, but from now on the responsible parties will be clearly stated.”

No comments:

Post a Comment