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China Offshore Bond Defaults Top $4bn

China Offshore Bond Market

Defaults in the China Offshore Bond Market are accelerating due to the economic fallout from the coronavirus pandemic and worldwide shutdowns of borders and entire sectors.

Hilong Holding Ltd., a Chinese oil equipment and services company, became the latest to default on Monday after it failed to repay a $165m dollar bond. The group’s dire financial situation saw it try to swap the debt with new debt, but it failed to get enough investor support.

With that payment failure, the total value of China offshore bond market defaults reached $4bn this year, which is a 150% increase from a year earlier, based on data compiled by Bloomberg. Defaults onshore have slowed this year as the government takes steps to avoid aggravating the economic slowdown.

China’s dollar bond market has seen a record 11 defaults and distressed exchanges so far this year. These numbers are up from nine last year, according to Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group Ltd. “There’s been a broad sector hit across private firms in particular.”

Hilong said investors representing about 63.45% of the principal amount of the bond which comes due Monday accepted the exchange offer, according to a filing to the Hong Kong Stock Exchange. That’s short of the required minimum acceptance rate of 80%.

Concern had been growing that the company would fail to win sufficient support for its bond swap offer. As a result, the company’s 2022 dollar bond fell to a record low of 30 cents on the dollar last week, dragging its shares down by 28% over the past five days. The stock was down 3.9% at 3:40pm in Hong Kong.

Consecutively, trading of the 2022 bond on the Hong Kong stock exchange was suspended from 9am Its 2020 dollar bond sank 12 cents to a record low of 43 cents.

The Shanghai-based company is assessing the impact of the default on its other debt instruments and has extended the deadline of the exchange offer for a fourth time, until 29 June, according to Hilong’s filing.

This makes Hilong the latest borrower from a line of struggling Asian oil and gas companies following Hong Kong-listed oil explorer MIE Holdings Corp. The latter defaulted on a dollar note in early May and an oil refiner from the eastern Shandong province missed a principal installment of a $1bn loan earlier this month.

Rating agencies Moody’s Investors Service and Fitch recently downgraded Hilong following an earlier deadline extension, citing concerns over the firm’s heightened refinancing risk.

During an investor call in late May, the company acknowledged it faces regulatory hurdles to transfer onshore funds abroad. It also said that it was in talks to bring in strategic investors but that such efforts may take a few months to complete.

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