Chinese Borrowers Hidden Liabilities Loom Large

Staggering amounts of maturing debt owed by Chinese borrowers are common headlines for generalist newswires.

But those numbers do not include off-balance-sheet borrowings and other liabilities, which increasingly exasperate investors, and increase volatility in Chinese issuers’ bonds.

Yuzhou Group recently sounded out market interest in a third private bond deal in recent months. As Reorg revealed, the last private issue – a $100 million 6% 361-day issue priced at 98.12% in September – was marketed with an ISIN code and a private page on Bloomberg. The issuer was a BVI-incorporated SPV.

These off-balance sheet deals create volatility in bond prices – despite company denials – due to concerns about significant exposure to non-controlling interests.

Onshore, problems caused by non-standard debt such as trust loans and leasing liabilities loom large. China Fortune Land Development, one of the most high-profile defaults by Chinese corporate borrowers to date, had received roughly RMB 40 billion ($6.189 billion) non-standard debt from Ping An Life Insurance, its second-largest shareholder and largest creditor, via various trust companies, as we reported. Sign up for weekly updates here