Shock wave of bond cashing: overseas institutions tighten the subscription of investment grade Chinese dollar bonds

category:Finance
 Shock wave of bond cashing: overseas institutions tighten the subscription of investment grade Chinese dollar bonds


A Wall Street hedge fund manager told reporters that due to the default of local state-owned enterprise bonds, many overseas investment institutions have become extremely cautious about subscribing for new Chinese dollar bonds, making the valuation of relevant bonds face drastic adjustment.

Belindalio, a portfolio manager at Fidelity International, said overseas investors were realizing that local government implicit guarantees might have disappeared in the wake of recent increases in defaults by local state-owned enterprises.

The chief financial officer of a local state-owned enterprise that is operating overseas bond issuance has also revealed that investment banks have repeatedly advised them to postpone the issuance of US dollar bonds - even if the interest rate of US dollar bonds is raised by about 30-50 basis points, it is not likely to win full subscription from overseas investment institutions.

The reporter learned that since Yongmei was exposed to default on bond payment, the difficulty in issuing Chinese dollar bonds has suddenly intensified. In the week of November 20, the size of US dollar bonds issued by Chinese investors was only US $862 million, about 90% lower than that of the previous week.

Chinas US dollar bond subscription investment tightened

The reporter learned from many sources that after some state-owned enterprises defaulted on their debts, overseas investment institutions quickly adjusted their investment models for Chinese dollar bonds.

In the past, due to the existence of implicit guarantee from local governments, we paid more attention to the yield of US dollar bonds of local state-owned enterprises and local urban investment platforms. However, now, the headquarters requires us to conduct a detailed investigation on the financial status of each Chinese funded US dollar bond, and evaluate whether the issuers can rely on their own financing ability and operating income to repay the US dollar debt principal when the local government no longer has implicit guarantee The rest The Wall Street hedge fund managers mentioned above told reporters that in the actual operation, it was difficult for them to obtain detailed financial data at the moment, which forced them to reduce their holdings of several investment grade Chinese dollar bonds for hedging.

After all, they believe that the valuation of these investment grade Chinese dollar bonds is bound to undergo a drastic adjustment after the loss of implicit local government guarantees.

He said bluntly that at present, many overseas hedge funds have taken similar measures to avoid risks, and even some radical hedge funds have suspended the subscription of new Chinese dollar bonds, which has led many Chinese enterprises to feel that it is suddenly difficult to issue bonds overseas.

A person in charge of a local urban investment platform told reporters that in order to issue us dollar bonds by the end of November, they had raised the issue interest rate by 30-40 basis points, but they still encountered the dilemma of few people asking for funds in the subscription and fund-raising process, and eventually had to postpone the issuance of US dollar bonds.

At present, many overseas investment institutions have become picky about the investment of Chinese dollar bonds. In the case that local governments may no longer give implicit guarantees, they demand that our newly issued US dollar bonds must receive the credit rating of at least two major international rating agencies. The fund manager said frankly. However, this leads to the hand in hand of the interest rate pricing power of the overseas US dollar bonds of the urban investment platform, which virtually increases the financial costs such as additional interest expenses to the platform.

The reporter found that, while tightening the subscription threshold of Chinese dollar bonds, many overseas hedge funds did not leave the market completely. They are placing some investment grade US dollar bonds and buying US dollar bonds of high-yield Chinese real estate enterprises.

The reasons are as follows: firstly, these real estate enterprises do not have the risk of disappearance of local government implicit guarantee, and their default probability has been rated by large international rating agencies, and their pricing marketization is relatively high; secondly, the default of local state-owned enterprises such as Yongcheng Coal also triggered a round of decline of these real estate US dollar bonds, which, in the view of many overseas investment institutions, are undervalued When the bottom copy can earn a lot of returns. Oliver Pursche, chief strategist at Bruderman asset management, told reporters.

Complete the issuance limit before the end of the year

The reporter has learned from many sources that, on the one hand, the sudden difficulty in the issuance of Chinese funded US dollar bonds is affected by the cautious attitude of overseas investment institutions, and on the other hand, it is also related to the sharp appreciation of RMB.

The financial director of the above-mentioned local state-owned enterprises disclosed to reporters that due to the RMB exchange rate rising by more than 8% in the past five months, if the enterprise converts the amount of US dollar bond raised into RMB, it will take about 30 million yuan less than that five months ago. Therefore, we have communicated with banks to hedge the exchange loss arising from the appreciation of RMB exchange rate by means of external guarantee and internal loan.

The so-called external guarantee and internal loan means that an enterprise applies for a corresponding RMB loan from a domestic bank with the amount raised by issuing bonds of US $50 million as a guarantee. At that time, the enterprise can unfreeze US $50 million only by repaying the principal and interest of the RMB loan, and there is no risk of exchange loss.

At present, many overseas bond issuing enterprises prefer to solve the exchange loss risk through RMB US dollar swap transaction. Specifically, after locking the exchange costs through foreign exchange swap transactions, the enterprise first converts US dollars into RMB at a fixed exchange rate for production and operation. At that time, if the enterprise needs to raise US dollars to repay the principal and interest of overseas bonds, it has the right to convert RMB into US dollars at the above fixed exchange rate.

The financial director of the local state-owned enterprise also said that after effectively resolving the exchange loss risk caused by the appreciation of the RMB, the senior management of the enterprise has been urging them to make full use of the existing overseas bond issuance quota as soon as possible before the end of the year, that is, to complete the issuance of US dollar bonds by the end of the year. In this way, enterprises can apply for new overseas bond issuance quota early next year.

However, whether this long cherished wish can be fulfilled depends on the expectations of overseas investment institutions. He said it bluntly. According to his understanding, at present, many overseas investment institutions are paying close attention to the specific debt repayment default solutions of local state-owned enterprises such as Yongmei, so as to evaluate whether the implicit guarantee of local government can be extended and whether the market investment confidence can be restored quickly. In addition, whether the adjustment of investment model of some overseas investment institutions for Chinese dollar bonds can be completed as soon as possible also affects their process of reallocating new Chinese dollar bonds. This paper introduces a series of risk assessment models of US dollar bonds issued by the head office, so as to find out the potential of a series of foreign investment funds. Source: 21st century economic report author: Chen Zhi, editor in charge: Wang Xiaowu_ NF

However, whether this long cherished wish can be fulfilled depends on the expectations of overseas investment institutions. He said it bluntly. According to his understanding, at present, many overseas investment institutions are paying close attention to the specific debt repayment default solutions of local state-owned enterprises such as Yongmei, so as to evaluate whether the implicit guarantee of local government can be extended and whether the market investment confidence can be restored quickly. In addition, whether the adjustment of investment model of some overseas investment institutions for Chinese dollar bonds can be completed as soon as possible also affects their process of reallocating new Chinese dollar bonds.

This paper introduces a series of risk assessment models of US dollar bonds issued by the head office, so as to find out the potential of a series of foreign investment funds.