SHANGHAI CHAORI DEFAULTS ON BOND PAYMENTS: Analysts Warn Of Potential Chain Reaction

Chinese solar company Shanghai Chaori has become the country’s first company to default on a publicly traded bond in 17 years.

Shanghai Chaori defaulted on its billion-yuan 11 Chaori bond this afternoon, as it didn’t have enough money to meet an RMB 89.8 million interest payment due today.

Via Arab Bank treasury dealer David Scutt on Twitter:

Bank of America analysts yesterday described Shanghai Chaori’s growing risk of default as China’s “Bear Stearns moment”, warning that it could spark a chain reaction that would grow into a liquidity crisis over time.

Chinese corporate bonds have fallen in the lead up to Shanghai Chaori’s default today, but some analysts, including those from Moody’s and Bank of America say the default could be good for China in the long run.

Moody’s VP Ivan Chung hoped the default would serve as a “wake up call” for China’s bond market:

“Over the past few years, municipal governments and banks in China have stepped in to help distressed companies meet their bond payment
obligations. These bailouts have led some investors to overlook the fundamental credit risks in bonds

A default would likely make investors recalibrate their risk-return consideration for onshore bonds. Credit risk would play a more important role in pricing, thereby making the bond market more efficient in the allocation of capital.”

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