HONG KONG (S&P Global Ratings) Nov. 11, 2024--Liquidations in China's bond markets surged in 2024 after a three-year pause as defaulters fell deeper into distress under the country's property market downturn and slowing economic growth.
That's according to an extensive study S&P Global Ratings published today, titled "China Bond Recovery Review 2024: Liquidations Surge As Resolutions Fall."
"In China's U.S. dollar bond market, no cases were settled out of court this year while the number of cases resolved in court fell by a third," said Charles Chang, the Greater China country lead for corporates at S&P Global Ratings.
"In China's domestic bond market, resolutions through the courts fell by half, all of which were non-property bonds, as property bonds saw no completed onshore restructurings for a third year," Mr. Chang said.
Cash recovery rates--cash payments within six months after resolutions as a percent of face value--were much higher onshore than offshore. This was true for both in-court (20% versus 6%) and out-of-court resolutions (51% versus 27%), the study found.
The study examined all default cases in China's bond markets since 2015, including offshore (424 U.S.-dollar bonds, 102 issuers) as well as onshore (754, 277). Key findings include:
For U.S. dollar-denominated bonds:
- The overall offshore default rate and amount fell from a peak of 6.7% and US$71 billion in 2022 to a trough of 0.5% and US$16 billion in 2024.
- Of cases since 2020, 55% remain unresolved, 23% were resolved out of court, and 19% in court; only property bonds saw liquidation.
- Property bonds take much longer than non-property bonds to go to court (13 months versus eight months), but once there, both take two months to resolve.
- Cash recovery rates for property bonds are lower than non-property both out of court (18% versus 38%) and in court (3% versus 21%).
For domestic renminbi (RMB) bonds:
- Onshore default rates peaked in 2019 for non-property (1.2%), and in 2022 for property (9.9%), then fell to 0.2% and 2% in 2024.
- Of cases since 2020, 56% were resolved out of court, and 19% in court (property: 73% and 0.4%); only 24% remain unresolved.
- Property cases take longer to enter courts than non-property (eight months versus six months) and much longer to resolve once there (17 months versus nine months).
- Cash recovery rates for property bonds are lower than non-property out-of-court (20% versus 91%) but similar in-court (31% versus 19%).
This report does not constitute a rating action.
The report is available to RatingsDirect subscribers at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box at www.spglobal.com/ratings.
| Greater China Country Lead: | Charles Chang, Hong Kong (852) 2533-3543; charles.chang@spglobal.com |
| China Country Specialist: | Chang Li, Beijing + 86 10 6569 2705; chang.li@spglobal.com |
| Research Assistants: | Claire Sun, Hong Kong |
| Melody Peng, Hong Kong | |
| Media Contacts: | Ning Ma, Hong Kong (852) 2912-3029; ning.ma@spglobal.com |
| Michelle Lei, Beijing + 86 10 6569 2961; michelle.lei@spglobal.com |
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