China’s onshore bond market experienced its first default as a solar-cell maker failed to pay full interest on its bonds, signaling the government will back off its practice of bailing out companies with bad debt.
Four companies pulled domestic bond sales and yields on speculative-grade debt jumped the most since November after Shanghai Chaori Energy Science & Technology Co. warned of what would be China’s first onshore default.
Shanghai Chaori Solar Energy Science & Technology Co. said it may not be able to make an 89.8 million yuan ($14.6 million) interest payment in full on March 7, in what would be the first default of an onshore bond.
China’s property trusts, grappling with repayments equivalent to the size of Puerto Rico’s economy, face rising default risks as a former central bank adviser dubs real estate the biggest threat to the economy.
The cost of insuring China’s bonds against non-payment fell the most since September and debt linked to municipalities gained after the bailout of a troubled trust product averted a default that may have spooked markets.
UBS AG’s China securities unit, the leading foreign underwriter of debt sales in the country, says the market wants policy makers to allow the first onshore bond default to reduce long-term hazards to the financial system.