Corporate bond defaults in China will reach a record high next year, with Beijing unlikely to come to the rescue of struggling companies, according to Fitch Ratings, reported the South China Morning Post.
The number of new onshore issuers who fail to repay debt could rise to up to 60 next year from 51 in the first 11 months this year, with the default rate jumping to 1.3%, the ratings agency said. Moody’s, however, said last month that it expects new issuers who fail to meet repayment obligations to rise to as many as 50 next year.
“We see 60% of companies with debt due in the next 12 months do not have enough cash to repay their debt,” said Jenny Huang, director of China corporate research at Fitch. “Banks may cut some slack and extend the repayment date of loans to private companies, but will not save them from offering new financing to pay their debt.”
Analysts say that Chinese regulators are now likely to tolerate an increase in defaults, as they seek to let the market play a bigger role in discerning risk. It has become increasingly clear that policymakers are not offering support to struggling borrowers, even those backed by local governments and state-owned entities.