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QINGDAO TODAY
在线翻译:
szdaily -> Markets -> 
High-yield bonds see explosive growth
    2019-06-03  08:53    Shenzhen Daily

CHINA’S credit investors are demanding to be paid for risk — and that’s leading to explosive growth in the nation’s high-yield bond market.

There are about 1.1 trillion yuan (US$159 billion) in local company bonds outstanding that offer investors more than 8 percent, the local cutoff for what’s considered high-yield, according to AJ Securities Co.

By late last year, the market was seven times larger than it was at the start of 2015, Guosen Securities Co. data show.

A record wave of company defaults is forcing asset managers to spend more time doing due diligence on issuers, and account for those risks in bond-market pricing. As China’s pile of high-yield debt grows, it’s drawing a new breed of investors who had previously focused on other risky investments, such as nonperforming loans (NPLs).

“China’s high-yield bond market is deepening this year as the pace of credit default continues and as institutional investors’ pricing power grows,” said Zhao Xue, head of fixed income department at Shanxi Securities Co.

Lakeshore Capital Co., a Chinese special situations asset manager which has favored NPLs, plans a US$1 billion fund this year to invest in high-yield bonds of private sector firms. DCL Investments, a Chinese distressed asset fund, has started screening junk bonds for potential purchases.

A manager who oversees 1 billion yuan in junk bonds at a large Chinese private fund said the company won its first mandate from foreign investors this year to invest in high-yield debt.

Shanxi Securities’ Zhao said some good investment opportunities emerged in China’s high-yield bond market last year, including one where some investors reaped fat returns from price volatility of a listed private firm, whose large cash holdings came under criticism.

“Private funds are still the main players,” said Zhang Yihan, deputy chief of financial market department at AJ Securities. “Yet we are seeing large securities houses and bad asset managers getting more active in this market.”

AJ Securities launched the first onshore high-yield bond index with China Central Depository & Clearing Co. in September.

Developing risk pricing is a priority for Chinese officials, who want capital to flow to promising firms while avoiding unsustainable debt pile-ups at struggling companies. It’s all part of reforms that also involve opening up the US$13 trillion bond market to foreign money. (SD-Agencies)

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