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China’s bailout window probably open till August, says OCBC

SINGAPORE — China will probably prop up bondholders in any onshore defaults until August to ensure a smooth clean-up of its local debt mess, Oversea-Chinese Banking Corp (OCBC) said in a research report yesterday.

SINGAPORE — China will probably prop up bondholders in any onshore defaults until August to ensure a smooth clean-up of its local debt mess, Oversea-Chinese Banking Corp (OCBC) said in a research report yesterday.

Events this year have defied Chinese rhetoric on embracing market-based reforms, after the authorities passed up opportunities to make investors stomach losses from two local defaults, OCBC said.

The People’s Bank of China arranged loan support for Cloud Live Technology Group after the Internet firm missed a payment last month. Later that month, Baoding Tianwei Group became the first state-owned entity to default, but it managed to raise funds from unclear sources to partly repay noteholders, OCBC said.

This week sees a potential third default after beverage-bottle maker Zhuhai Zhongfu Enterprise said it was still short of 442 million yuan (S$96 million) for a bond payment due tomorrow.

Forcing investor losses may sour market sentiment and hinder the successful completion of state efforts to clear a debt pile issued by provincial cities, OCBC said. Banks must swap out 1 trillion yuan of high-cost local government bonds issued by 36 Chinese cities for municipal debt with lower coupons by the end of August, it added.

“Onshore investors remain unfazed despite the two defaults,” said Mr Nicholas Koh, a credit analyst at the Singapore-based OCBC. “In terms of when China may allow bondholders to tolerate losses, the authorities may just have to wait till the end of August for a suitable opportunity.” BLOOMBERG

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