China’s “JPMorgan” Hit By Sudden Debt Crisis As Cross-Default Chain Reaction Triggered
Ever since Beijing allowed private Chinese companies (even certain state-owned enterprises) to officially fail for the first time in 2016, and file for bankruptcy to restructure their unsustainable debt loads, it’s been a one-way street of corporate bankruptcies, one which we profiled last June in “Is It Time To Start Worrying About China’s Debt Default Avalanche“, and which culminated with a record number of Chinese onshore bond defaults in 2018, as a liquidity crunch sparked a record 119.6 billion yuan in defaults on local Chinese debt in 2018.
However, whereas for much of 2018 Chinese defaults affected largely less meaningful companies with little to no systemic impact, in 2019 the defaults started hitting dangerously close to the beating heart of China’s massive, $40 trillion financial system (roughly three times China’s GDP). As we reported back in February, a giant Chinese borrower missed its payment deadline when Wintime Energy – which in 2018 became the latest Chinese bond defaulter as the coal miner failed to pay scheduled interest – didn’t honor part of a restructured debt repayment plan, setting the scene for even more corporate defaults, and as Bloomberg put it, “underscoring the risks piling up in a credit market that’s witnessing the most company failures on record.”
Then, earlier this week, a unit of China’s infamous conglomerate, HNA Group, defaulted on a loan it took out just seven months ago, the latest in a string of missed payments that threaten to complicate the embattled Chinese conglomerate’s restructuring. As Bloomberg reported, lenders to CWT International Ltd., a Hong Kong-listed unit of HNA which is still struggling to cope with its debt after embarking on more than $25 billion of asset sales since 2018 unwinding the biggest global acquisition binge in modern Chinese history, said they would seize most of the company’s assets –
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