My Initial Thoughts on Chinese Bond Defaults
Join your fellow bondholders to fight for your money
As planned, we held the Evergrande distressed debt webinar last week, where we discussed the bond default and debt restructuring of Chinese companies in Hong Kong. You can still listen to the the replay and read the key takeaways here. (In this article, “companies” has the same meaning as “borrowers” or “bond issuers”.)
I’ve always been an equity guy, and bond has never been my forte. However, I did look at some high yield bonds and collateralize loans in my previous jobs, about 10-15 years ago. The Asian bond market has gone through multiple cycles since the 1998 crisis, but the basic story hasn’t changed much.
The story goes like this: It began with easy money and cheap credit, followed by overleveraging and a bubble, leading to a bigger bubble which attracted even more money and credit. This self-fulfilling mechanism went on for a while, until the debt issuers were either unable to pay or refused to pay. Not much has changed really. Back then it was South Korea, Thailand and Indonesia. Today is China, which is arguably more complicated. (We will discuss the political implications separately.)
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