Every Other Market Is Buckling And Yet China Is Doing Fine

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Record sales of corporate debt in China underscore how official support for the nation’s financial markets has boosted their resilience to stress caused by the coronavirus outbreak.

While bond deals elsewhere have shown signs offreezing up, Chinese borrowers have raised $22 billion via new issuance this month alone, marking the strongest February to date and up from $17 billion a year earlier.

The surge in sales mirrors strength across China’s markets, which are buoyant despite the near shutdown of the economy due to the virus. The CSI 300 Index of stocks has recouped an initial plunge spurred by the epidemic, while a gauge of small-cap equities is near its highest level since 2016. The yuan is approaching its strongest level versus a basket of global peers since August.

“The swift action of the government to inject liquidity into the financial system reduces bond investors’ concern on potential default increases within China,” said Judy Kwok-Cheung, Hong Kong-based director of fixed-income research at Bank of Singapore. Lower U.S. Treasury yields also are driving investors into Chinese high-yield bonds, she added.

Chinese firms ranging from property developers to financial companies have issued a record $51 billion dollar bonds so far this year, up over 30% from a previous peak recorded for the same period a year ago. Just this week, Bank of China Ltd., one of the country’s biggest state lenders,priced an offering of $2.8 billion perpetual preference shares, a form of bank debt also known as Additional Tier 1 notes.

This stands in glaring contrast to the rest of the world, where the $2.6 trillion international bond market has come to a virtual standstill as the coronavirus spreads fear through company boardrooms.

Issuance Boom

Driving the bond issuance boom are the country’s cash-hungry property developers who managed to sell new debt even withdisruptions to deal-making and anuptick in the cases of the epidemic outside China.

“Chinese dollar bond new deals look still supported on good demand and investors expecting policy support from the government,” said Clement Chong, head of research at NN Investment Partners. Among the typically risker group of high-yield borrowers, investors still perceive real estate developers to be safer and it’s mainly these issuers that are still able to sell new debt, he added.

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While deals all but dried up in Europe and the U.S. this week, there’s been buoyant demand for Chinese bonds. Hysan Development Company Ltd. $3.2b Orders for $850m Perp” class=”terminal-news-story” target=”_blank”>attracted over $3.2 billion orders for a $850 million perpetual note this week, while China Overseas Land & Investment Ltd. $2.9b Orders for $1b 3-Part Bond” class=”terminal-news-story” target=”_blank”>secured more than $2.9 billion for a $1 billion three-part bond.

In the current low interest rate environment, global investors’ hunt for higher returns has kept borrowing cheap for Chinese firms.

Bond financing costs for China’s riskiest issuers sank to 22-month lows last month and remain well below last quarter’s year-to-date highs, a Bloomberg index show.

An even bigger boom is taking place in China’s domestic bond market. Onshore issuance has reached 740 billion yuan so far this month, more than double February’s total last year. A slew ofmeasures by Beijing aimed at easing liquidity conditions and supporting businesses crimped by the virus outbreak have fueled the latest borrowing binge.

— With assistance by Shuqin Ding

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