Beijing’s bid to rival US as debt haven at risk after crackdowns
(BLOOMBERG) - To a world full of fixed-income investors starved of safe assets with attractive yields, China's government bonds had become a tempting sight in recent years. However, red flags are now being hoisted. A series of government crackdowns on everything, from property developers to technology firms, is triggering questions about whether a sudden change in regulations could harm foreign investment in the securities. While positive inflation-adjusted interest rates and relatively tame volatility are keeping some fund managers bullish on China's sovereign debt, the regulatory risk is combining with a lacklustre credit rating to dampen the allure. That is making Chinese bonds a less likely candidate to challenge US Treasuries as global haven assets, impeding Beijing's push to promote the renminbi's worldwide usage and dent the dollar's dominance. "I can't help but feel a higher regulatory risk for the nation's bonds," said Mr Akira Takei, a global fixed-income money manager at Asset Management One in Tokyo who has yet to buy the securities. "Although I don't expect any restrictions to be introduced in China's government bond market, I have to examine how tighter regulations ou...
China’s bid to rival US as debt haven at risk after crackdowns
TORONTO (BLOOMBERG) - To a world full of fixed-income investors starved of safe assets with attractive yields, China's government bonds had become a tempting sight in recent years. However, red flags are now being hoisted. A series of government crackdowns on everything from property developers to technology firms is triggering questions about whether a sudden change in regulations could harm foreign investment in the securities. While positive inflation-adjusted interest rates and relatively tame volatility are keeping some fund managers bullish on China's sovereign debt, the regulatory risk is combining with a lacklustre credit rating to dampen the allure. That's making Chinese bonds a less likely candidate to challenge US Treasuries as global haven assets, impeding Beijing's push to promote the yuan's worldwide usage and dent the dollar's dominance. "I can't help but feel a higher regulatory risk for the nation's bonds," said Akira Takei, a global fixed-income money manager at Asset Management One in Tokyo who has yet to buy the securities. "Although I don't expect any restrictions to be introduced in China's government bond market, I have to examine how tighter regulations outs...
Kaisa bondholders reject Chinese developer’s debt swap proposal
HONG KONG (BLOOMBERG) - Kaisa Group Holdings failed to win approval from bondholders for a debt swap designed to avert default. The firm had sought to exchange its US$400 million (S$547.5 million) of US dollar notes maturing Dec 7 for new ones due 18 months later. The offer to exchange the notes failed to meet the required 95 per cent approval rate, according to a statement from the company Kaisa, which became China's first developer to default on dollar debt in 2015, now risks once again reneging on its obligations. A crisis at the company could spur contagion risk just as global investors return to offshore property bonds. Kaisa is the nation's third-largest issuer of dollar notes among property firms, with some US$11.6 billion outstanding. "To ease the current liquidity issue and reach an optimal solution for all stakeholders, the company is assessing and is closely monitoring the financial condition and cash position of the group," a stock exchange filing from the firm said on Friday (Dec 3). "It will explore feasible solutions (including but not limited to renewal and extension of borrowings and disposing of assets)." The company previously said it may not be able to repay bon...
Yellen extends US debt limit default deadline to Dec 15
WASHINGTON (REUTERS) - US Treasury Secretary Janet Ms Yellen on Tuesday (Nov 16) extended a deadline for a potential US government default to Dec 15 from Dec 3, giving Congress more time to raise the federal debt ceiling as lawmakers also consider a massive social spending and climate bill. Ms Yellen said in a letter to congressional leaders that the adjustment was "based on our most recent information," a reference to Treasury tax collections and cash flow data. She said the Treasury would be able to make a US$118 billion (S$160 billion) transfer to the Highway Trust Fund required on Dec 15, a month after President Joe Biden's signing of a sweeping infrastructure bill on Monday. But the transfer would count against the debt ceiling, as the funds would be invested in non-marketable Treasury securities. "While I have a high degree of confidence that Treasury will be able to finance the US government through December 15 and complete the Highway Trust Fund investment, there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the US government beyond this date," Ms Yellen said. She repeated her call for Congress t...
As Evergrande default looms, what legal options do offshore creditors have?
LONDON/HONG KONG (REUTERS) - With China Evergrande Group's default deadline drawing closer, offshore bond investors in the property developer are pondering their legal options to safeguard their investments. Below are some factors at play as offshore investors, with some US$20 billion (S$27 billion) of Evergrande debt outstanding, gear up to deal with the potential fallout from what could become China's biggest ever corporate default: Do Evergrande's offshore bonds carry any guarantee from issuer? Chinese legal rules prevent mainland-incorporated parent companies from guaranteeing their subsidiaries' offshore debt without going through a registration and approval process. To work around this, offshore corporate bonds, in many cases, are issued by Special Purpose Vehicles (SPVs) and feature a so-called keepwell structure. The way many market participants worked around the lack of a guarantee was by using keepwell deeds - an undertaking to bondholders, and the offshore SPV which issues the debt, that the parent will make sure the SPV maintains a positive net worth and remains solvent. The keepwell structure emerged in 2012-2013, according to Fitch, which cited data estimating that in...
Banks cashing in on ESG bonds amid climate crisis
(BLOOMBERG) - While many banks have been condemned for contributing to the climate crisis by helping fossil fuel producers raise cash in debt markets, the banking industry as a whole is making more money from underwriting ESG-related bond sales. Banks have earned about US$3.6 billion (S$4.9 billion) in fees this year from arranging sales of bonds advertised as instruments of green, social or sustainable development for companies, governments and other organisations, according to data compiled by Bloomberg. That's more than double the US$1.6 billion that banks have pocketed so far this year from issuing debt for fossil-fuel companies. The numbers provide further evidence of the seemingly unrelenting cascade of money pouring into environmental, social and governance (ESG) investing. About US$750 billion worth of ESG-related bonds have been issued this year, compared with US$468 billion during all of 2020, Bloomberg data shows. Whether those bonds actually fund what they say they fund is another question, given the growing phenomenon of greenwashing, as industries scramble to mollify governments and consumers increasingly attuned to the consequences of climate change. Analysts say whe...
Relief rally in US stocks as default threat put off
NEW YORK (AFP) - Wall Street stocks rallied on Thursday (Oct 7) in a buoyant session propelled by relief at a congressional agreement that removed the near-term risk of a US debt default. Democratic and Republican Senate leaders reached an agreement to temporarily lift the debt ceiling through Dec 3 in a move that buys time for more negotiations in a divided Washington. "We've kicked the can down the road," said Kim Forrest at Bokeh Capital Partners. "And I think the more we kick the can down the road, the less likely the really aggressive kind of measures on taxes, and spending are. Wall Street doesn't like taxes." The Dow Jones Industrial Average ended at 34,754.94, up 1 per cent. The broad-based S&P 500 advanced 0.8 per cent to 4,399.75, while the tech-rich Nasdaq Composite Index gained 1.1 per cent to 14,654.02. Worries about a default have added to concerns about inflation and tightening monetary policy, prompting volatility in recent weeks. The Labour Department reported 326,000 new unemployment claims, seasonally adjusted, were filed last week, 38,000 less than the previous week's upwardly revised level and fewer than analysts had expected. The data come ahead of Friday's mu...
US stocks advance as default risk appears to ebb
NEW YORK (AFP) - Wall Street stocks finished modestly higher on Wednesday (Oct 6) after trading in the red most of the session as congressional Republicans offered a compromise in high-stakes talks on lifting the US debt limit. Senate Minority Leader Mitch McConnell said Republicans would allow Democrats to vote for temporarily lifting the ceiling on how much the government can borrow. The stalemate in the talks had raised the possibility of a US default in less than two weeks. McConnell's offer punts the problem to December, giving the ruling Democrats time to prepare a longer term solution. "For now, at least, this disaster du jour just got moved to the back-burner," said Art Hogan, chief strategist at National Securities. The Dow Jones Industrial Average ended up 0.3 per cent at 34,416.99, more than 550 points above its session low. The broad-based S&P 500 gained 0.4 per cent to 4,363.54, while the tech-rich Nasdaq Composite Index advanced 0.5 per cent to 14,501.91. Hogan said the market could be in line for more volatility in the weeks ahead, with the Federal Reserve expected to taper stimulus payments soon and investors anxious about the upcoming earnings season. Sam Stovall, ...
Evergrande debt troubles seem particular to China: US Fed chief
WASHINGTON (REUTERS, BLOOMBERG) - United States Federal Reserve chair Jerome Powell said on Wednesday (Sept 22) that the debt problems of property developer Evergrande seem particular to China and that he did not see a parallel with the US corporate sector. A potential default by Evergrande, Asia's biggest junk bond issuer, drove a steep sell-off on Wall Street and widened spreads on US high-yield bonds on Monday, although markets have steadied since then. "In terms of the implications for us, there's not a lot of direct United States exposure. The big Chinese banks are not tremendously exposed, but you would worry it would affect global financial conditions through global confidence channels and that kind of thing," Mr Powell told reporters after the Fed's policy meeting. "But I wouldn't draw a parallel to the United States corporate sector." He added that with the onset of the coronavirus pandemic last year, the Fed was concerned about a wave of defaults by highly leveraged companies, noting that did not materialise to a significant extent because of the US Cares Act and action by the central bank. Currently, corporate default rates are "very, very low", he said. As for Evergrand...
Republicans withhold support for US debt ceiling increase
WASHINGTON (AFP) - Republicans leaders in Congress on Tuesday (Sept 14) continued to withhold support for efforts by the Democratic majority to increase the United States debt ceiling. Treasury Secretary Janet Yellen warned last week that the government will run out of money next month unless lawmakers take action, and banking groups have urged Congress to move to prevent "irreparable harm" to the US economy. But Republican Senate Minority Leader Mitch McConnell said Democrats will have to resolve the issue on their own. "The Democratic leaders have every tool and procedure they need to handle the debt limit on a partisan basis, just like they are choosing to handle everything else," Mr McConnell said on the Senate floor. Congress is currently considering a US$1.2 trillion (S$1.6 trillion) infrastructure plan that has the backing of Democrats and some Republicans. Also on their agenda is a a massive social spending plan costing US$3.5 trillion over 10 years, which has only garnered the support of Democrats who plan to pay for it with tax increases on corporations and the wealthiest Americans. Mr McConnell objects to what he called a "massive reckless tax and spending spree". "When ...
Struggles facing China’s Evergrande not panicking markets – yet
NEW YORK (AFP) - Debt-crippled Chinese real estate giant Evergrande's troubles are being watched closely by foreign investors, but markets do not seem to fear a major contagion, at least so far. With a debt load of US$300 billion (S$403 billion), the threat of bankruptcy is real, especially as Evergrande hinted on Tuesday (Sept 14) that it may not be able to pay its creditors. However, IG France analyst Alexandre Baradez said "the market is not surprised as it may have been by Lehman Brothers", the American banking giant whose spectacular collapse in 2008 was the spark that ignited the global financial crisis. "Lehman was a shock: a well-rated bank that disappeared overnight," Mr Baradez told AFP. But with the Chinese firm "investors are preparing". A Mainly Domestic Problem With a presence in more than 280 cities, Evergrande is one of the largest private companies in China and one of its leading real estate developers. Crippled with debt, the firm saw its Hong Kong-listed shares collapse this year on mounting fears for its financial health. The Chinese government seems determined to get control of the Evergrande situation, even if it means forcing the company to go out of business...
Yellen warns of ‘unthinkable’ US default risk in August without debt limit hike
WASHINGTON (REUTERS) - United States Treasury Secretary Janet Yellen on Wednesday (June 23) warned Congress that the US risks a debt default and a new financial crisis as soon as August if lawmakers fail to act quickly to suspend or raise the federal borrowing limit. In testimony to a Senate appropriations sub-committee, Dr Yellen said defaulting on US debt obligations would be "unthinkable" and "would have absolutely catastrophic economic consequences". Dr Yellen said that to avoid uncertainty for financial markets, Congress should pass new debt limit legislation - allowing the Treasury to continue borrowing - before the latest suspension expires on July 31. A first-ever default on US government debt obligations "would precipitate a financial crisis, it would threaten the jobs and savings of Americans at a time when we're still recovering from the Covid pandemic", Dr Yellen said. "I would plead with Congress to simply protect the full faith and credit of the United States by acting to raise or suspend the debt limit as soon as possible." The Treasury in the past has been able to stave off potential default for several months by employing extraordinary cash flow management measures...
When debt makes climate change worse
(NYTIMES) - How does a country deal with climate disasters when it is drowning in debt? Not very well, it turns out. Especially not when a global pandemic clobbers its economy. Take Belize, Fiji and Mozambique. Vastly different countries, they are among dozens of nations at the crossroads of two mounting global crises that are drawing the attention of world financial institutions: climate change and debt. They owe staggering amounts of money to various foreign lenders. They face staggering climate risks, too. And now, with the coronavirus pandemic pummelling their economies, there is a growing recognition that their debt obligations stand in the way of meeting the immediate needs of their people - not to mention the investments required to protect them from climate disasters. The combination of debt, climate change and environmental degradation "represents a systemic risk to the global economy that may trigger a cycle that depresses revenues, increases spending and exacerbates climate and nature vulnerabilities", according to a new assessment by the World Bank, International Monetary Fund (IMF) and others. It comes after pressure from academics and advocates for lenders to address ...
Court grants Hyflux ‘last’ adjournment to judicial management application
SINGAPORE (THE BUSINESS TIMES) - Hyflux has a last chance for a firm conclusion to one of three rescue deals currently on the table, as Justice Aedit Abdullah on Wednesday (Oct 14) agreed to grant adjournment to the judicial management application. A hearing will be conducted "no earlier than three weeks" from now, the judge said. But this was after he chastised Hyflux's lawyer Nish Shetty from Clifford Chance Asia for making a last-minute request for an adjournment at the start of Wednesday's hearing. Justice Abdullah described Mr Shetty's actions as "taking the court for granted" and said that "hairdressers and dentists do seem to get more notice than me about cancellations". At the virtual hearing on Zoom, he ordered Mr Shetty and Tan Kok Quan Partnership lawyer Eddee Ng, who represents the unsecured working group (UWG) of creditors, to meet him physically in court. There, Mr Shetty explained that the various new developments in the last 48 hours - including a new expression of interest (EOI) from American fund manager Strategic Growth Investments (SGI) on Monday - had led to his request. But in remarking on the repeated requests for extensions to Hyflux's debt moratorium withou...