Date
17 December 2017
Kaisa reportedly missed payments this month on its offshore US dollar bonds. Photo: Kaisa Group
Kaisa reportedly missed payments this month on its offshore US dollar bonds. Photo: Kaisa Group

Insolvency risk seen growing in China after Kaisa default

The number of Chinese companies filing for bankruptcy this year is expected to grow 5 percent to 2,760 after the apparent default of property developer Kaisa Group Holdings Ltd. (01638.HK), global trade credit insurer Euler Hermes said.

Chinese firms will face a heightened insolvency risk, as liquidity is going to tighten as a result of the crackdown on shadow banking, overcapacity in the real estate sector and greater fiscal discipline by local governments, it said in a statement.

Shenzhen-based Kaisa reportedly missed interest payments in the middle of this month to investors in its offshore US dollar bonds, and many of its bank accounts are said to have been frozen.

However, because of the complex and costly procedures involved, insolvency cases in Chinese courts are still rare, Euler Hermes said.

“Essentially, Chinese buyers are increasingly turning to local exporters for more credit,” Anil Berry, the insurer’s Asia Pacific commercial director, said.

“They are also insisting on open account terms, whereas traditionally they were happy to pay on letters of credit or even on advance payment terms.” 

The firm found that Chinese buyers take 90 days on average to settle invoices, much longer than the global average of 73 days.

A quarter of payments from Chinese companies are overdue, and the non-payment rate more than doubled during 2014. Food, chemicals, commodities and computer and telecommunications are the sectors most severely affected, it said.

Nearly 80 percent of Hong Kong exporters supply products to the mainland or plan to do so, but 69 percent of exporters are concerned about payment risk there, the statement said.

– Contact us at [email protected]

JH/JP/FL

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Chinese companies filing for bankruptcy to grow by 5 percent to 2,760 cases after the apparent default of leading property developer Kaisa Group, global trade credit insurer Euler Hermes said in a statement.

The country will have heightened insolvency risk as liquidity is going to tighten due to the crackdown on shadow banking, overcapacity in the real estate sector and greater fiscal discipline by local governments, it said.

Shenzhen-based Kaisa was reported to have missed interest payments to investors in its offshore dollar bonds in the middle of this month and that many of its bank accounts had been frozen.

However, because of the complex and costly procedures involved, insolvency cases in Chinese courts are still relatively rare in absolute terms, Euler Hermes said.

“Essentially, Chinese buyers are increasingly turning to local exporters for more credit,” explains Anil Berry, Asia Pacific commercial director at Euler Hermes.

“They are also insisting on open account terms whereas traditionally they were happy to pay on letters of credit or even on advance payment terms,” he said.

It also found that Chinese buyers on average take 90 days to settle invoices, much longer than the global average of 73 days.

A quarter of payments from Chinese companies are overdue while the rate of non-payment is more than double in 2014. Food, chemicals, commodities and computer & telecom are the sectors most severely affected.

Nearly 80 percent of Hong Kong exporters already or plans to supply products to China, yet 69 percent are concerned about payment risk there, it said.

– Contact us at [email protected]

JH/JP

EJ Insight reporter

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