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Chinese firms face record interest rates on debt
Source: Bloomberg News |
September 22, 2011, Thursday
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Print Edition
Print Edition
COMPANIES in China face record interest rates on short-term debt as curbs on lending force them to rely on commercial paper to pay back loans.
The average yield on top-rated, one-year corporate notes has risen 101 basis points since June 30 to 5.9 percent, and is poised for the biggest quarterly increase in Chinabond data going back to 2007. China Yangtze Power Co sold 6.5 billion yuan (US$1.02 billion) of one-year debt at a coupon of 6.04 percent on September 8, the first time a AAA rated company paid more than 6 percent on short-term securities, according to China International Capital Corp.
The People's Bank of China has raised borrowing costs five times since mid-October 2010 to curb inflation in the world's fastest-growing major economy, with the latest increase in July lifting the benchmark one-year rate to 6.56 percent. The average coupon on one-year, AAA rated Indian company debt fell 14 basis points to 9.49 percent this quarter, while funding costs rose 1 basis point to 0.5 percent for similar-maturity notes in the United States, according to data compiled by Bloomberg News.
High yields reflect "the market concern about liquidity and also the view that monetary policy may not change in the short-term," said George Weisi Tan, who oversees about 300 million yuan as head of bond investments at Fortune SGAM Fund Management Co in Shanghai. "It's hard to get a loan from the bank these days."
Loan quotas and higher reserve requirements are cutting access to bank credit, helping push sales of commercial paper to 552 billion yuan this year, Bloomberg data show. Sales are set for the busiest first three quarters of the year on record, according to the data.
Offerings of longer-maturity corporate bonds fell 33 percent to 71.4 billion yuan this quarter from the same period last year, the data show.
Yields for longer-term bonds aren't high enough to compensate for investors for the risk, so companies have issued more short-term debt, Tan said.
Beijing-based China Yangtze, rated AAA by China Chengxin International Credit Rating Co, has 14 billion yuan of commercial paper outstanding, Bloomberg data show.
The company, which generates electricity at the world's largest hydropower dam, will use proceeds from the bond sale to pay back bank loans, according to documents governing the offering. It has to repay 31 billion yuan of debt in 2011 as of August and had 49.7 billion yuan of bank loans as of March, the documents show.
'Greater pressure'
China Yangtze's "financing costs are markedly going up, and there is greater pressure to pay back debt," according to the prospectus. Two calls to the company's main number seeking comment on the effects of increasing commercial paper rates on company financing plans went unanswered.
China Power Investment Corp also paid a 6.04 percent coupon when it sold 5.8 billion yuan of one-year bonds on September 13, Bloomberg data show. The state-owned electricity generator uses proceeds from debt sales to pay back loans, it said in the prospectus.
The company had total short-term borrowings of 20.3 billion yuan as of March, it said. Its debt-to-asset ratio was 85 percent at March 31 with 27 percent of its borrowings short-term, according to the document. Two calls to the Treasury Department of China Power seeking comment on the rise in borrowing costs were unanswered.
Monetary tightening
Chinese inflation, which slowed to 6.2 percent in August, from a three-year high of 6.5 percent, must be stemmed even as the global economy slows, Premier Wen Jiabao said on September 14.
Monetary tightening has helped temper growth, with the economy growing 9.5 percent last quarter, the least since 2009.
"Credit risks will increase if the economy slows," said Xide Ma, a Beijing-based fund manager at E Fund Monthly Income Fund. "There are a lot of companies getting financing and weak demand so yields are going up. Loans are also tight."
Yields on Shandong Helon Co's 400 billion yuan of 5.8 percent one-year notes rose to a record 8.94 percent on September 19 after the company's credit rating was downgraded, Chinabond prices show.
China Lianhe Credit Rating Co cut the Weifang-based fabric maker's ranking on September 15 to A- from A+ with a "negative" outlook, citing high debt and management irregularities.
The average yield on top-rated, one-year corporate notes has risen 101 basis points since June 30 to 5.9 percent, and is poised for the biggest quarterly increase in Chinabond data going back to 2007. China Yangtze Power Co sold 6.5 billion yuan (US$1.02 billion) of one-year debt at a coupon of 6.04 percent on September 8, the first time a AAA rated company paid more than 6 percent on short-term securities, according to China International Capital Corp.
The People's Bank of China has raised borrowing costs five times since mid-October 2010 to curb inflation in the world's fastest-growing major economy, with the latest increase in July lifting the benchmark one-year rate to 6.56 percent. The average coupon on one-year, AAA rated Indian company debt fell 14 basis points to 9.49 percent this quarter, while funding costs rose 1 basis point to 0.5 percent for similar-maturity notes in the United States, according to data compiled by Bloomberg News.
High yields reflect "the market concern about liquidity and also the view that monetary policy may not change in the short-term," said George Weisi Tan, who oversees about 300 million yuan as head of bond investments at Fortune SGAM Fund Management Co in Shanghai. "It's hard to get a loan from the bank these days."
Loan quotas and higher reserve requirements are cutting access to bank credit, helping push sales of commercial paper to 552 billion yuan this year, Bloomberg data show. Sales are set for the busiest first three quarters of the year on record, according to the data.
Offerings of longer-maturity corporate bonds fell 33 percent to 71.4 billion yuan this quarter from the same period last year, the data show.
Yields for longer-term bonds aren't high enough to compensate for investors for the risk, so companies have issued more short-term debt, Tan said.
Beijing-based China Yangtze, rated AAA by China Chengxin International Credit Rating Co, has 14 billion yuan of commercial paper outstanding, Bloomberg data show.
The company, which generates electricity at the world's largest hydropower dam, will use proceeds from the bond sale to pay back bank loans, according to documents governing the offering. It has to repay 31 billion yuan of debt in 2011 as of August and had 49.7 billion yuan of bank loans as of March, the documents show.
'Greater pressure'
China Yangtze's "financing costs are markedly going up, and there is greater pressure to pay back debt," according to the prospectus. Two calls to the company's main number seeking comment on the effects of increasing commercial paper rates on company financing plans went unanswered.
China Power Investment Corp also paid a 6.04 percent coupon when it sold 5.8 billion yuan of one-year bonds on September 13, Bloomberg data show. The state-owned electricity generator uses proceeds from debt sales to pay back loans, it said in the prospectus.
The company had total short-term borrowings of 20.3 billion yuan as of March, it said. Its debt-to-asset ratio was 85 percent at March 31 with 27 percent of its borrowings short-term, according to the document. Two calls to the Treasury Department of China Power seeking comment on the rise in borrowing costs were unanswered.
Monetary tightening
Chinese inflation, which slowed to 6.2 percent in August, from a three-year high of 6.5 percent, must be stemmed even as the global economy slows, Premier Wen Jiabao said on September 14.
Monetary tightening has helped temper growth, with the economy growing 9.5 percent last quarter, the least since 2009.
"Credit risks will increase if the economy slows," said Xide Ma, a Beijing-based fund manager at E Fund Monthly Income Fund. "There are a lot of companies getting financing and weak demand so yields are going up. Loans are also tight."
Yields on Shandong Helon Co's 400 billion yuan of 5.8 percent one-year notes rose to a record 8.94 percent on September 19 after the company's credit rating was downgraded, Chinabond prices show.
China Lianhe Credit Rating Co cut the Weifang-based fabric maker's ranking on September 15 to A- from A+ with a "negative" outlook, citing high debt and management irregularities.
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