BEIJING, Oct 10 (Reuters) - Chinese corporate bond defaults will likely continue to rise next year due to daunting refinancing costs, with defaults expected to concentrate on the country’s cash-starved private sector, Fitch Ratings said on Wednesday.
Availability of credit for firms to refinance their borrowings remains tight despite the central bank’s monetary policy easing steps, as commercial banks continue to be cautious in lending to private companies and non-strategic, financially wobbly state-owned enterprises (SOEs), Fitch said.
As of the end of September, 25 corporate issuers had defaulted on payments for 52 onshore bonds worth a total of 60.6 billion yuan ($8.76 billion), according to data compiled by Reuters.
The onshore default rate was 0.23 percent in the first half, down from 0.37 percent in 2017 and a peak of 0.66 percent in 2016, thanks to improved conditions in the commodity sector and a recovery in prices, Fitch said.
But the ratings agency still expects the full-year default rate to be higher in 2018 than in 2017, with funding conditions for the private sector remaining tight.
Aggressive business strategies, “key man risk”, and weak accounting and corporate governance practices have also been drivers of some private-sector defaults, according to Fitch.
Cross-guarantees among unrelated private companies, for example, are a common practice to obtain bank financing in some regions, which increases the risk of chain defaults, Fitch said.
Despite the relatively high number of defaults this year, policymakers have said the default rate remains much lower than in many other countries, and that risks in the bond market are generally controllable. ($1 = 6.9157 Chinese yuan) (Reporting by Ryan Woo; Editing by Gopakumar Warrier)