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Original Caption: Yongmei Has Over 2 Billion Yuan In Bonds To Return! The Market Is Calling For The Price Anchor Of SOEs Bonds To Blow Off
The aftermath of the bond market caused by the default of one billion bonds has not diminished. Henan Yongcheng Coal and Electricity Holding Group Co., Ltd. (hereinafter “Yongmei Holdings”) may not be able to redeem two more bonds.
On November 17, Yongmei Holdings issued an announcement stating that due to insufficient liquidity of the company, the redemption of the two ultra-short-term financings “20 Yongmei SCP004” and “20 Yongmei SCP007” is uncertain. The two bonds are due to be exchanged on November 22 and 23, respectively, and the principal and interest amounts to be paid are 1,032 million yuan and 1,025 million yuan, respectively.
Yongmei Holdings is just one of many lenders that have recently defaulted, but because the default exceeds market expectations, it has become a key player in triggering market sentiment.
Market participants interviewed by a China Business News reporter believe that the current bond market is generally stable and that individual regions and industries are affected. Among them, he will focus on Yongmei’s debt monitoring arrangement. If the arrangement does not meet market expectations, it may affect bond issuance throughout the region.
National Development and Reform Commission spokesman Meng Wei said on the 17th that, in response to individual emerging risks, we will pay close attention to interest payments and related bond redemption, and urge the formulation of plans. resolution to protect the legitimate rights and interests of investors.
Yongmei’s sudden flaw triggers emotions
In the recent period, there have been frequent defaults in the credit bond market. From the perspective of market participants, many defaults are within expectations. What really ignites market sentiment is the default of Yongmei Bond.
“The previous market price anchor suddenly disappeared. The whole price logic was broken. The market panic lies in this.”Everbright ValuesZhang Xu, chief fixed income analyst, told a China Business News reporter.
The reason Yongmei’s default is extremely lethal in many credit risk events is that it clearly exceeded market expectations. Before the formal default on November 10, as a local state-owned company in Henan Province, Yongmei Holdings’ main credit rating has always been AAA. It has always been a relatively positive signal for the market: Yongmei Holdings has High-quality coal resources and acceptable operating performance At the end of September, the company’s monetary assets reached more than 40 billion yuan. Earlier, he also announced that “some assets will be transferred for free.” Until the end of October, he successfully issued a 1 billion yuan medium-term note.
CITIC valuesThe chief fixed income analyst clearly told China Business News that the difference between the risks that occurred in the economic recession in previous years is that this round of risks appeared in the economic recovery stage and, compared to the last three years , was mainly due to manufacturing defaults by private companies. It once happened in local state-owned companies and supply-side repaired industries, so unexpected risks took the market by surprise.
“Previously, the pricing of all SOEs bonds was based on their operating capabilities, on the one hand, and on the other hand, on the implicit support provided by the government. According to the Yongmei situation, the implicit government support it may not be reliable. So is it not possible to buy corporate bonds like Yongmei Holdings in the future? “Zhang Xu told China Business News that this disorderly default is the key to the panic in the market.
A week ago, on November 10, after Yongmei Holding’s first ultra-short-term default of 1 billion yuan, the credit rating agency lowered its rating from AAA to BB and placed it on the watch list for possible downgrades. . The related bond ratings followed suit. Down.
So far, Yongmei Holdings has 23 existing bonds with a total balance of 23.41 billion yuan, of which the total amount of bonds owed during the year is 5 billion yuan, and the total amount of bonds matured within one year. it is 12 billion yuan.
The first full amortization affects small and medium banks
If Yongmei bonds triggered recent market sentiment, then “Baoshang Bank’s 6.5 billion Tier 2 equity debt amortization” is another redemption-broke milestone.
On November 13, Baoshang Bank issued an announcement stating that it will implement a full amortization of the 6.5 billion yuan issued of the principal of the “Baoshang Bank Secondary Bonds 2015” and any accrued interest pending payment (total: 585,639 .344.13 yuan) No more payment.
Although several years have passed since the bailout broke, the full repayment of Tier 2 capital bonds is the first case in the domestic bond market.
A person close to the acquisition and sale of Baoshang Bank told a China Business News reporter that Baoshang Bank’s 6.5 billion tier two equity debt was ultimately resolved through write-off, in fact reflecting the determination of the central government. to break the rigid payment. On the other hand, if Tier 2 capital bonds are not amortized, they cannot be included in bank capital according to the standards of the Basel Capital Accord.
In fact, after Baoshang Bank was taken over by the People’s Bank of China and the China Banking and Insurance Regulatory Commission on May 24 last year, it was confirmed that it was seriously insolvent and could not survive. “Financial bonds and ordinary bonds are discounted. Tier 2 equity bonds are lower than other financial bonds in the order of repayment. At that point, we can basically judge that this Tier 2 equity debt will pay off.” A brokerage firm The underwriter told the China Business News reporter.
The reporter found that the bond issuance and credit ratings of some small and medium-sized banks were affected by the Baoshang Bank secondary equity debt incident. On November 16, Fujian Strait Bank announced that it would cancel the 500 million yuan Tier 2 capital bond due to be issued on the 17th.
The aforementioned broker underwriters said that in the short term, it will impact the issuance of secondary equity bonds by small and medium-sized banks and affect the speed of development of local banks. However, some market participants told China Business News that if it is not issued, the issue interest rate must be increased and the price of the bond must include a risk premium.
However, a director of a brokerage investment bank told a China Business News reporter that long-term pain is better than short-term pain. In the long term, breaking the sticky payment will go a long way and make the bond market truly market-oriented, which favors market development.
In his opinion, there was no “middle class” in the sale of debt in the past. It was especially good that everyone was rushing to buy it. When a concentrated risk incident occurred, investors did not buy again. This market is particularly abnormal. The breakdown of the new exchange has forced domestic investors to improve their research capabilities, while slowly forming a junk bond industry chain to enrich the bond market structure. “In the recent volatility of the bond market, many investors have bought on dips and have already made a fortune. This is purchasing power differentiation,” he said.
The follow-up impact depends on the disposal situation
Based on the experience of recent years, credit risk often leads to dizzying liquidity risk. In 2016, when urban investment bonds, local state companies, and state subsidiaries defaulted, the daily bond supply overlapped, credit spreads widened, and risks increased. In the first half of 2019, credit events such as Baoshang Bank led to significant volatility and greater differentiation in the interbank market for certificates of deposit, and bond risks increased due to the intensified liquidity stratification problem. So will the “wave of default” bring the same situation this time?
The head of the investment bank of the aforementioned brokerage firm told China Business News that investors are not lacking in money today, mainly because they lack confidence.
“Individual bond funds are under pressure and individual regions and industries are affected. The overall market is currently stable,” the aforementioned securities firm’s bond underwriter told the CBN reporter.
The People’s Bank of China has recently calmed market sentiment by freeing up liquidity, including increasing the intensity of reverse repurchase, over-rolling MLF (medium-term loan servicing), etc., and providing small banks and media diversified flow support. Currently, money market interest rates have been relatively stable.
In the follow-up, some investors told reporters that the market will pay particular attention to the disposition of Yongmei bonds. If the results of the arrangement are unpopular, like Northeast Special Steel in the past, it may affect the bond issuance of the entire Henan region and the cost will be higher. .
Obviously, he told a China Business News reporter that the root cause of the recent risk events is not the simple decline in industry prosperity in the past or the weak profitability of private manufacturing, but rather the game of the willingness to pay the debt of local state companies. Because the future needs to strengthen awareness of debt repayment, as well as the restriction and management of “debt avoidance”, to reduce financial risks in a fundamental sense.
In his opinion, the fundamental solution to the debt problem is to strengthen the awareness and attitude towards risk of financial institutions and entities, and to raise the rating threshold and the disclosure of information of bond issuers.
On the 17th, Meng Wei stated at a press conference of the National Development and Reform Commission that in response to potential individual risks, he would pay close attention to interest payments on related bonds and urge the formulation of resolution plans to protect the legitimate rights and interests of investors.
According to Lianhe Credit Statistics, in the fourth quarter of this year, China’s bond market repayments amounted to about 3.35 trillion yuan, of which monthly repayments in October, November and December exceeded one trillion yuan. The repayment pressure is relatively high. Risk events will continue to occur, but overall credit risk is controllable.
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