CHINA Cinda Asset Management Co., China’s toxic debt manager, may become a frequent visitor to debt capital markets following a debut bond issue this month, as a slowdown in the economy offers rich pickings and the State-backed entity transitions to a commercial model.

    Cinda’s entry into the international debt capital markets last week with a US$1.5 billion bond issue signals its growing use of leverage to buy distressed assets, especially in the well-founded expectation that policymakers would not let economic growth drop sharply below 7 percent.

    Business prospects will also be boosted by China’s attempt to rein in its massive shadow banking sector, with the rise in corporate stress and defaults that could be expected to follow.

    “We expect more controlled failures after the first onshore bond default to take place in order to remove moral hazard,” said Yao Aidan, an economist at AXA Investment Management.

    “This poses great opportunities for distressed debt managers as long as they assess the risks properly.”

    China recorded its first domestic bond default in March when loss-making solar equipment producer Shenzhen-listed Shanghai Chaori Solar Energy Science & Technology Co. missed an interest payment, establishing a landmark for market discipline in China.

    Yao noted Cinda was in a “sweet spot” as the economic slowdown presented buying opportunities, but intervention by Chinese authorities would prevent distressed debt from snowballing into a systemic problem.

    (SD-Agencies)