Vulture funds are racing to buy bonds of troubled Chinese state-owned enterprises, after a sharp sell-off sparked by a large coal mining group’s default on a RMB 1 billion ($156 million) debt issue, reported the Financial Times.
Yongcheng Coal & Electricity, a coal miner in central Henan province, one of China’s most populous provinces with more than 95 million people, defaulted on Friday. This was just weeks after Brilliance Auto, a carmaker owned by the Liaoning provincial government, announced it would not be able to repay a three-year RMB 1 billion bond, said the FT.
The default of the two groups has triggered a plunge in prices of state-backed corporate debt as international and onshore investors grappled with the prospect of China’s central government stepping back from its traditional role as a safety net for local government businesses.
“Our investment decision had been based on the belief that triple-A rated state firms are safe investments regardless of their fundamentals,” said the chief ratings officer at a Shanghai-based bond fund. “That’s no longer the case.”