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China is said to have removed Sinosteel Corp. President Jia Baojun from his post, according to people familiar with the situation, after the state-owned steel trader said it’s facing financial difficulties.
The State-owned Assets Supervision and Administration Commission also discharged him from his position as chairman of unit Sinosteel Corp. Ltd. this month, according to two people who have seen an internal notification of his departure. An official from the Beijing-based Sinosteel said yesterday that the company is facing difficulties amid slowing economic growth, with some account receivables not collected on time.
Three years ago Jia replaced Huang Tianwen who was removed by the state-owned enterprises watchdog after the company was accused of inflating sales at its units by the National Audit Office. The most recent leadership change comes as the trader battles tumbling steel prices that have sent its peers into financial trouble.
“Steel trading is money-losing and Sinosteel hasn’t done anything to effectively boost earnings in the past years,” said Xu Zhongbo, chief executive officer of Beijing Metal Consulting Ltd., “Management’s failure to bail out the company may eventually prompt SASAC to restructure Sinosteel.”...
(Bloomberg) -- A Chinese sausage maker is set to avoid a default in a turnaround, and the authorities were said to have stepped in to help a state-owned steel trader facing a bond deadline next week.
The National Development and Reform Commission will hold a meeting with investors in government-controlled Sinosteel Co.’s 2 billion yuan ($315 million) of 2017 securities who have an option to sell them back on Oct. 20., people familiar with the matter said. The NDRC will ask them not to do so, according to one of the people. Parent Sinosteel Corp. sent a letter to noteholders pleading with them to not sell the bonds back as Sinosteel would be unable to repay, the people said.
Sausage maker Nanjing Yurun Foods Co., which said Monday it wasn’t sure it could repay a 1.3 billion yuan note due Oct. 18 amid cash shortages, issued a statement Friday saying it would repay. The statement means the payment will be on time, said Wang Dongliang, contact person at lead underwriter Bank of China Co. The developments come after solar firm Baoding Tianwei Yingli New Energy Resources Co. missed payment on bonds Tuesday in the fifth onshore default this year, according to China International Capital Corp.
“Investors may not be able to see the real credit risks in the bond market because of the aversions of defaults,” said Ji Weijie, a bond analyst at China Securities Co. in Beijing. “The NDRC’s intervention means Sinosteel may really avoid such a default. It’s reasonable for regulators to step in because the fall of a state-owned company would have an impact on employment."...
...Sinosteel Corp. told bondholders the NDRC and the State- owned Assets Supervision and Administration Commission of the State Council are coordinating with related parties to prevent a default. Sinosteel Corp. and its units had more than 100 billion yuan of debt as of December last year, Caixin reported in May, citing data collected by a debt commission led by Bank of China. The company is yet to release its 2014 financial report.
The great wall of Chinese money has now flooded into the credit market. Leverage up to 10 times in the junior tranches, what could possibly go wrong?
China's markets resemble nothing if not a great rolling ball of money that moves from asset class to asset class, constantly searching for the next source of sizable returns. After shifting away from stocks this summer, when the value of the Shanghai Composite Index almost halved in a dramatic market selloff, the Great Ball of China seems to have found a new home: bonds sold by Chinese corporates. The strength of the switch into corporate credit is underscored in a new report from Zhi Ming Zhang, director of asset allocation research at HSBC, and financial analyst Helen Huang, who argue that the links between China's credit market and other parts of its financial system have been strengthening.
While the daily turnover of A-shares — shares generally reserved for mainland Chinese investors — has shrunk to a quarter of what it was at the market's peak, a major hallmark of Chinese markets has already been making its way into corporate credit: namely, leverage. "Since the equity market slide started in July 2015 and liquidity switched from equity to credit products, there has been a growing leveraged investment in corporate bonds listed on the exchange market," the two analysts note. Where China's retail investors traded stock on margin, when it comes to corporate bonds investors appear to be using a different form of leverage known as repo. Repoing bonds allows investors to effectively pawn the assets in exchange for short-term loans that can be deployed into additional assets. According to HSBC, the daily volume of one-day repos on the Shanghai Stock Exchange has doubled since 2014, indicating investors are using that particular form of leverage to juice their returns. Meanwhile, structured products that allow investors in more junior tranches to leverage on the senior slices have also appeared, effectively allowing investments to be leveraged by as much as 10 times.
Source: HSBC All of which has culminated in a rather topsy-turvy effect for China's corporate credit market. Where the yield for five-year AAA-rated exchange-traded corporate bonds was about 70 basis points higher than the yield on Chinese government bonds as recently as July of this year, it compressed to as little as 10bps in September. One Chinese company — a property developer known as China Vanke — managed that month to sell a 5 billion yuan ($785 million) bond at a yield of 3.5 percent. That was 4 basis points lower than the yield of China Development Bank bonds that effectively come with a government guarantee and a zero risk weighting, meaning investors are asking for less of a return to hold China Vanke debt. Source: HSBC All of which indicates that China's Great Ball of money has well and truly arrived in the corporate credit space, and has carried with it its hallmark distortive effects. Meanwhile, Zhang and Huang argue that the growing intricacy of China's credit markets, and its entwining with other areas of the country's financial system, demands a new approach from policymakers. "This new normal is not just simply about slower growth but also the increasing sophistication and linkages between different economic and financial factors and asset classes," they write. "In turn, a wider group of asset classes now requires policy support to ensure the smooth functioning of the financial system. This explains why policy is becoming more experimental — entering uncharted territory requires new thinking."
"This new normal is not just simply about slower growth but also the increasing sophistication and linkages between different economic and financial factors and asset classes," they write. "In turn, a wider group of asset classes now requires policy support to ensure the smooth functioning of the financial system. This explains why policy is becoming more experimental — entering uncharted territory requires new thinking."
just like the policy support that cushioned the shanghai market? it's hard to figure which bond market crashes first- american energy corporates or chinese corporates. but i suppose the damage will be "contained."
"This new normal is not just simply about slower growth but also the increasing sophistication and linkages between different economic and financial factors and asset classes," they write. "In turn, a wider group of asset classes now requires policy support to ensure the smooth functioning of the financial system. This explains why policy is becoming more experimental — entering uncharted territory requires new thinking."
kind of like the policy support that cushioned the shanghai market? it's hard to figure which bond market crashes first- american energy corporates or chinese corporates. but i suppose the damage will be "contained."
edit: this post of mine, and one i just wrote in another thread about cdo's reappearing has suddenly sparked a new thought for me. for some time i've been wondering: "where is the bubble?" it seemed like the bubble was everywhere, but nowhere in particular. then i started thinking that the bond market, pushing into negative interest rates, was the central bubble. but i couldn't figure out how it would burst. now i see an analogy: cdo's of subprime mortgages were the first instruments to blow up in '07 - they were junk to the junk power, so of course the spark that went first, but was not contained. now we have chinese corporate debt and american energy-based corporate debt, and probably other classes of corporate debt beyond my knowledge, that are teetering. the spark won't be in the treasury market. the spark will be in the junkiest kind of corporate debt, or cdo's of corporate debt, or leveraged funds of corporate debt, i.e. junk to the junk power. i expect another "flight to quantity" as bill fleckenstein described the move to treasuries last time around. but i don't know when.
Alibaba posts white-hot Q3, driven by more mobile sales growth
In the second quarter of 2015, Alibaba broke new ground: for the first time ever, more than half of the company’s revenues came from mobile sales. In the third quarter, according to the company’s report today, that trend continued in a big way. Mobile revenues accounted for 51 percent of Alibaba’s total China commerce revenue in Q2, and just a quarter later, that number is up to 61 percent.
In total, Alibaba reported US$3.5 billion in revenue this quarter, which represents year-on-year growth of 32 percent. Its gross merchandise volume (GMV) this quarter was US$112 billion, up 28 percent year-on-year.
But it’s in mobile where the growth numbers get really crazy. This quarter, the company’s mobile GMV was US$69 billion, which is up 121 percent year-on-year.
That’s a massive lift, and it has been powered by two things. First, a growth in users: Alibaba’s monthly active mobile users hit 346 million this quarter, up 59 percent year on year. Second, the company’s mobile monetization rate has jumped from 2.16 percent in June to 2.39 percent now. That might seem like a tiny difference; it’s just 0.23 percent growth. But when you’ve got 346 million users, 0.23 percent monetization growth means nearly 800,000 more people are buying when they hop on Alibaba’s mobile apps, as compared to last quarter. That’s nothing to sneeze at.
Crunching the numbers further suggests that Alibaba’s mobile users spent slightly more in Q3, too. Given a mobile GMV of US$69 billion, the company’s 346 million mobile users spent an average of nearly US$199.50 each. That’s an improvement over last quarter, where mobile users spent about US$195 each.
If you’re the visual sort, here’s how Alibaba itself breaks down its quarterly accomplishments:
Sept30Infographic
Growth amidst the slowdown
While these numbers are impressive, Alibaba’s overall earnings picture in Q3 2015 certainly doesn’t present the kind of skyrocketing growth you may remember from the company’s heady pre-IPO days. But in the context of China’s economic slowdown, many were expecting weaker numbers from Alibaba.
Wall Street was certainly impressed by the company’s Q3 numbers. After the earnings were announced, Alibaba’s stock jumped nearly 9 percent – just a week ago the stock was under US$70 a share, and after the Q3 numbers broke, its stock broke US$82 per share. The share price has since slid backwards somewhat.
The Chinese government "won't let" the property market crash;
China has 1.1 Billion people that need homes so all the empty apartments will get filled;
It's different in China because a centrally planned economy and a totalitarian government can make and implement good economic decisions so much more quickly and effectively than the USA or any other democracy...
(feel free to add your own China myth to the list)
Misallocation of capital? In China? Perish the thought...
A Chinese fertilizer maker and a pig iron producer have flagged bond payment difficulties, adding to signs of stress in the nation’s corporate note market after at least six defaults this year.
Jiangsu Lvling Runfa Chemical Co., based in the eastern city of Suqian, is asking its guarantor to repay 53.1 million yuan ($8.3 million) in bond principal and interest due Dec. 4, according to a statement posted on Chinamoney’s website. Sichuan Shengda Group Ltd., based in the southwestern province of Sichuan, is uncertain it can repay notes due in 2018 that holders can opt to sell back early on Dec. 5, it said in a statement on the same website Thursday.
More companies in China are struggling to repay bonds amid the worst economic slowdown in a quarter century. China Shanshui Cement Group Ltd. this month became at least the sixth company in 2015 to default on yuan-denominated domestic notes. State-owned steel trader Sinosteel Co. postponed a bond payment for a second time last week...
...Bank of Tianjin Co., the trustee manager on Sichuan Shengda’s notes, said it will hold a bondholder meeting on Dec. 3, according to a statement to Chinamoney Thursday. Sichuan Shengda’s subsidiary’s pig iron production is in halt because of falling prices and the cash shortage, the lender said in a separate statement...
...The stress isn’t limited to bonds. China Fishery Group Ltd. failed to repay a $31 million installment due earlier this month on a $650 million loan, according to Standard & Poor’s. Creditor banks may have found it difficult to roll over the debt following a government investigation the company flagged in August, according to JPMorgan Chase & Co.
Last edited by GRG55; November 27, 2015, 11:30 AM.
A Chinese fertilizer maker and a pig iron producer have flagged bond payment difficulties, adding to signs of stress in the nation’s corporate note market after at least six defaults this year.
Jiangsu Lvling Runfa Chemical Co., based in the eastern city of Suqian, is asking its guarantor to repay 53.1 million yuan ($8.3 million) in bond principal and interest due Dec. 4, according to a statement posted on Chinamoney’s website. Sichuan Shengda Group Ltd., based in the southwestern province of Sichuan, is uncertain it can repay notes due in 2018 that holders can opt to sell back early on Dec. 5, it said in a statement on the same website Thursday.
More companies in China are struggling to repay bonds amid the worst economic slowdown in a quarter century. China Shanshui Cement Group Ltd. this month became at least the sixth company in 2015 to default on yuan-denominated domestic notes. State-owned steel trader Sinosteel Co. postponed a bond payment for a second time last week...
...Bank of Tianjin Co., the trustee manager on Sichuan Shengda’s notes, said it will hold a bondholder meeting on Dec. 3, according to a statement to Chinamoney Thursday. Sichuan Shengda’s subsidiary’s pig iron production is in halt because of falling prices and the cash shortage, the lender said in a separate statement...
...The stress isn’t limited to bonds. China Fishery Group Ltd. failed to repay a $31 million installment due earlier this month on a $650 million loan, according to Standard & Poor’s. Creditor banks may have found it difficult to roll over the debt following a government investigation the company flagged in August, according to JPMorgan Chase & Co.
do you [or anyone else here for that matter] know anything about the holders of chinese corporate debt? i'm trying to figure out whether there's the possibility of contagion. i've been thinking that the next crash would be in corporate debt, led by low grade debt of energy companies. but now i'm trying to think about whether chinese corporate debt could lead the parade to the dump.
do you [or anyone else here for that matter] know anything about the holders of chinese corporate debt? i'm trying to figure out whether there's the possibility of contagion. i've been thinking that the next crash would be in corporate debt, led by low grade debt of energy companies. but now i'm trying to think about whether chinese corporate debt could lead the parade to the dump.
We should be waiting for the obligatory "the Chinese debt situation is under control" statement.
do you [or anyone else here for that matter] know anything about the holders of chinese corporate debt? i'm trying to figure out whether there's the possibility of contagion. i've been thinking that the next crash would be in corporate debt, led by low grade debt of energy companies. but now i'm trying to think about whether chinese corporate debt could lead the parade to the dump.
I understand a lot of this was packaged and sold as income product to private individuals, and also that during the peak of the insane credit boom in China many local companies found it more lucrative to lend out the cash on their balance sheets and place loans with other companies instead of investing in expanding their own business. That is why there are guarantor entities for much of this debt; it was part of the marketing promotion to individuals.
I also think this is why there may not be a large risk of contagion as the debt is held widely, payments can be "deferred" and losses spread around across a broad swath of the economy and public.
do you [or anyone else here for that matter] know anything about the holders of chinese corporate debt? i'm trying to figure out whether there's the possibility of contagion. i've been thinking that the next crash would be in corporate debt, led by low grade debt of energy companies. but now i'm trying to think about whether chinese corporate debt could lead the parade to the dump.
jk I have been poking around the Chinese foreign debt subject for a few weeks now.
All very murky.
The chart shows one estimate of the overall size of Chinese foreign debt. source: http://qz.com/223991/the-chinese-gov...think-it-does/
It's tempting to just subtract deposits from borrowing to arrive at $400 billion net debt.
But the deposits may be at some firms and the notes at others, so most of the $700 billion might be the amount at risk.
And of course the curve is rising sharply so the amounts may be greater now.
It seems most of this is short term lending backed by letters of credit and pledged collateral, which may or may not really exist.
To me short term is better. The smart guys on wall street may have seen this problem early and be backing out of the Chinese credit market as the loans expire.
If the US and others are shutting off lending to China that may be one driver for the recent increase in Chinese insolvencies.
The names I see mentioned most often for exposure are Citi and Louis Dreyfus.
Let us know if you find who is holding the hot potatoe.
Originally posted by thriftyandboringinohioView Post
jk I have been poking around the Chinese foreign debt subject for a few weeks now.
All very murky.
The chart shows one estimate of the overall size of Chinese foreign debt. source: http://qz.com/223991/the-chinese-gov...think-it-does/
It's tempting to just subtract deposits from borrowing to arrive at $400 billion net debt.
But the deposits may be at some firms and the notes at others, so most of the $700 billion might be the amount at risk.
And of course the curve is rising sharply so the amounts may be greater now.
It seems most of this is short term lending backed by letters of credit and pledged collateral, which may or may not really exist.
To me short term is better. The smart guys on wall street may have seen this problem early and be backing out of the Chinese credit market as the loans expire.
If the US and others are shutting off lending to China that may be one driver for the recent increase in Chinese insolvencies.
The names I see mentioned most often for exposure are Citi and Louis Dreyfus.
Let us know if you find who is holding the hot potatoe.
The letters of credit tend to be for trade finance. Given the institutionalized corruption in China that some of the collateral (such as physical raw material) may not actually exist would not be a surprise. But LC defaults will be a separate and not particularly concerning matter, given their very short term nature, compared with corporate bond issuance and defaults.
I also think this is why there may not be a large risk of contagion as the debt is held widely, payments can be "deferred" and losses spread around across a broad swath of the economy and public.
Take a page from the US response to the Global Financial Crisis. Defer, delay, rinse, repeat....hope the economy grows and inflation returns.
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