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  • Credit Bonds Weekly:Financial regulation will intensify and

      

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    ????Weekly topic: further discussion on credit risks of bonds issued by private enterprises. 1.Bond financing stayed gloomy, while non-standardfinancing rebounded. The size of social financing totaled RMB2.12tn in March. Credit remained weak for the short term, and loan size exhibited a weak YoY growth in terms of structure. Bond financing decreased significantly, and the size of three types of non-standardfinancing including entrusted loans, trust loans and undiscounted bills grew rapidly. 2.Private enterprises??demand for bond financing was relatively pressing. In March, private enterprises were major net financing entities of bonds, and the net financing amount of bonds in that month neared RMB30.0bn; local state-owned enterprises are traditionally main forces of credit bond financing, but the net financing amount of those enterprises in March was merely RMB13.1bn, which is lower thanthatof private enterprises; the net financing amount of credit bonds from centrally-administered SOEremained negative, with a net lending of RMB19.6bn. Given thatcurrentlythe credit bond financing cost is rather high, the demand of private enterprises for bond financing is more pressing. 3.Profit improvement of state-owned enterprises is far better than that of private enterprises.The supply side reform generally benefits state-owned monopolies. For midstream and downstream sectors with weakerbargaining power, their products lack the basis for price hike but costs are rising. Therefore, their profits are squeezed.In Januaryand February, the YoY growth rate of operating revenue and total profit of state-owned enterprises was well above that of private enterprises. In addition, among industrial enterprises above designated size, over half of profit increment came from sectors related to supply side reform. 4.Investors should be alert to risks with bonds issued by private enterprises. Last week, we analyzed the sector distribution of bond-issuing private enterprises and their dependence on bond financing, and pointed outthat private enterprises operating in downstream, fully competitive sectors generally have high bondfinancing proportion and that the rising bond rates will considerably increase financing costs of those enterprises. This week we point out private enterprises??weak position in terms of financing conditions and corporate profit improvement. Investors areadvised to guard against risks with bonds issued by private enterprises.

    ????Weekly market review: Supply increased, and yields generally went up. Net supply on primary market was RMB30.49bn, which increased considerably as compared with the supply of credit bonds in the previous week.AAAbonds ranked first with 33%share, and the construction and manufacturing sectors ranked first and second respectively. Among 137major credit bonds issued, there were 15quasi-municipal bonds, and the proportion of quasi-municipalbonds fell considerably as compared with the previous week. Trading in secondary market decreased, and the yields generally went up. Specifically speaking, for 1Y bonds, the yield of AAA+ bonds remained basically flat, and the yield of all other grades gained 1BP. For 3Y bonds, the yield of AAA+ bonds gained 3BP, the yield of AA-bonds gained 1BP,and the yields of all other grades gained 4BP. For 5Y bonds, the yield of AAA+ bonds gained 4BPand the yields of all other grades gained 5BP. For 7Y bonds, the yields of all grades gained 2BP.

    ????Weekly rating adjustment review: Rating adjustments speeded up. This week witnessed4credit bond corporate rating upgrade and 2corporate rating downgrades. A total of 4 issuers were involved in those rating outlookupgrade, and they were all issuers of industrial bonds and no issuer of quasi-municipal bonds was involved. All those corporate rating upgrades were attributed to staged recovery of the sectors in which relevant issuers operated. One of the issuers involved in rating downgrades this week is Xianglu Petrochemicals Co., Ltd., which is an issuer from manufacturing sector and whose rating was downgraded from A+to A-. The main reason is thatXianglu Petrochemicals is now still under suspended operation, the time of restoring operation is not clear, enterprise operation is stagnant, its financial pressure increases, and the company??s overall anti-risk capability continually weakens. The other issuer is Xinyang Hongchang Piping Fuel Gas Engineering Co.,Ltd., which is an issuer from electric power, thermal power, gas and water production and supply sector and whose rating was downgraded from BBB+to BB. The main reason for such downgrade is that the issuer was found with many bad debts and debt defaults and has been repeatedly included in the list of faithless entitiessubjected to execution. To date, the enterprise??s operation has not yet improvedand its capital chain still faces pressure.

    ????Investment strategy:Financial regulation will intensify and risk preferencewill godown. Last week, the yields of credit bonds rose slightly with the rising yields of T-bonds. The yields of AAAenterprise bonds and AAenterprise bonds gained 2BPon average, and the yields of quasi-municipal bonds gained 1BPon average. How will credit bonds go in the next step? Investors shall notice the following points:

    ????1) The regulation of local government debts will continue.Recently, Zhengzhou municipalgovernment released a document on further strengthening the administration of government debts, requiring that government financing behavior shall be regulated, government debts shall not be formed against relevant regulations, and all counties should lose no time in stripping financing platform companies of government financing function and accelerating thetransformation of platform companies. CBRC??s Document No.6 required that local government debt risks should be prevented and new business models including special construction funds, cooperation between governmentand social capital and government-purchasedservices should be conducted in a standard manner.The regulation of local government financing is an inevitable trend. The uncertainty on the credibility of quasi-municipal bonds will intensify in the long term.

    ????2) Risks of Hongqiao Groupeasedtemporarily. Last week, Hongqiao held a bond investors communication meeting and disclosed the following information: they wouldintroduce two banks to secure new credit line of more than RMB50.0bn; the audit report of domestic entity would be publicized by the end of April, while the audit report of overseas entity would be publicized by the end of June. After the meeting, the prices of bonds linked to Hongqiao reboundedquickly. The clean priceof 15Shandong Hongqiao MTN001rose from the lowest point of RMB 96.42to 99.05at present, but still failed to return to its averageprice in March. This is in line with our earlier judgmentthat ??all parties will gambleon trading opportunities, and centraltrend ofvaluation tendsto godown??.

    ????3) Riskpreferencefor credit bonds tends togodown.CBRC issued a number of documents requiring the implementation of ??preventing financial risk??. Document No.6requires that bond investment shall be monitoredto grasp true investment direction of funds and thesituation of underlying credit assets. Document No.46 requires preventing the risk of financial products idling.With the standardization of entrusted funds and penetrating management, assets of banks may transfer from off-balance sheet to on-balance sheet. In addition, the access to credit rating becamemore restrictive, thus the risk preference of banks will be substantially lowered and the new demand of credit bonds might decrease accordingly. Existing bonds may face sell-off pressure during deleveragingand credit bonds with lower credit rating are facing more severe negative impact.


    2017-05-11
    上一篇:神州优车陆正耀:商业模式价值在于有益于投资 下一篇:Credit Bonds Monthly:Watch out for risks of private enterpri


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