Business
First China Default Seen as Record $427 Billion Debt Due
BEIJING – Chinese company debt twice the size of Ireland’s economy will come due in 2014, spurring concern the nation is on the cusp of its first corporate bond default.
A record 2.6 trillion yuan ($427 billion) of interest and principal on securities issued by non-financial companies must be repaid next year, 19 percent more than this year and the most since China International Capital Corp. began compiling the data in 2008. Ten-year AAA corporate bond yields surged 89 basis points since Dec. 31 to 6.18 percent, touching a record 6.23 percent on Nov. 27. That compares with a 70 basis-point rise to 2.68 percent for similar-rated notes globally.
People’s Bank of China Governor Zhou Xiaochuan’s signal the central bank will act to prevent excessive leverage has contributed to the surge in borrowing costs and forced many firms to delay financing plans. Rising interest rates may cause a “partial debt crisis to explode,” the official China Securities Journal said in a Nov. 26 editorial.
“The probability of default will get much higher in 2014 as maturing debt reaches a record,” said Shi Lei, the Beijing-based head of fixed-income research at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “The central bank’s policy of controlling leverage, which may last a long time, will crowd out companies with bad credit profiles and, ultimately, help restructure the economy.”
Sales Pulled
Bond sales by Chinese companies are down 23 percent to 1.57 trillion yuan this half-to-date compared with the first six months of the year, according to data compiled by Bloomberg. Companies postponed or scrapped 96.1 billion yuan of bonds in November compared with 29.8 billion yuan the month prior, according to filings on the websites of Chinamoney, Chinabond and Shanghai Clearing House.
The 2.6 trillion yuan of debt due next year consists of a record 2.13 trillion yuan of notes which must be redeemed, and a record 470 billion yuan in interest, the CICC data show. Investors also have options to sell some 200 billion yuan of bonds back to issuers, according to CICC.
Prominent Problems
There have been no defaults in China’s publicly traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s Investors Service. Guosen Securities Co. estimates Chinese non-financial companies’ debt ratios reached 93 percent last year, while the average in Asia hasn’t surpassed 70 percent in the last 10 years, according to a report released on Dec. 2.
The central bank warned on Nov. 5 the economy may see a decline in leverage over a long period, and said there are “prominent” problems in local government and property industry borrowings. China’s broad debt ratio has also been rising sharply, PBOC Deputy Governor Hu Xiaolian said on Nov. 20.
Following the Communist Party’s Nov. 9-12 plenum, China’s leaders pledged to allow market forces a “decisive” role in the allocation of resources. Societe Generale SA China economist Yao Wei said the announcement signals the government may stop saving troubled companies which can’t meet debt obligations and allow the first bond default in the coming 12 months.
‘Doomed Companies’
“If the government is going to let market forces play an important role, it should let those doomed companies fail,” said Yao in Hong Kong. “In industries with overcapacity, such as steel and shipbuilding, there’s a higher likelihood of bond defaults.”
Credit risks are most concentrated in highly leveraged sectors, including heavy industries, according to Ping An’s Shi, who said rising borrowing costs will begin to have a “real effect” on the world’s second-largest economy next year. Corporate bond yields may rise to even higher levels in the first half of 2014, he said.
Xinyu Iron & Steel Co. (600782), a Jiangxi-based steelmaker which reported a loss of 175 million yuan for the January to September period, has 3.25 billion yuan of borrowings due in 2014, compared with 0.31 billion yuan in 2013, according to data compiled by Bloomberg. The yield on the company’s AA+ locally rated 2016 debt has almost doubled this year to 10.5 percent as of Dec. 6, according to exchange data.
The yield on five-year AA rated corporate bonds has risen 125 basis points this year to 7.26 percent, according to Chinabond. The rate on similar-maturity government debt climbed 116 basis points to 4.39 percent. The gap widened 8 basis points to 287.
Debt Burdens
“Companies are facing heavy debt burdens and cash supply is tight. All these factors will make bond defaults very likely,” said Dong Hui, a bond analyst at China Securities Co. in Beijing. “But it’s hard to judge whether the first will happen next year. After all, no local governments want companies in their localities to be the first to default.”
Electricity companies have to repay 520 billion yuan in bond principal and interest next year, the most among all industries, according to CICC, which took out third place for fixed-income research in New Fortune magazine this year. That’s followed by local government financing vehicles, which must repay 239 billion yuan.
As default concerns escalate, the cost of insuring the nation’s debt against non-payment is edging higher. China’s credit-default swaps increased 2.1 basis points last week to 67.5 as of Dec. 6, according to data provider CMA. The swaps rose 1.4 basis points the week prior, advancing for the first time since the five days ended Oct. 25, the data show.
Cash Supply
The yuan advanced to the strongest level in 20 years today after the central bank raised the currency’s daily fixing to a record and the nation’s trade surplus widened to the biggest in more than four years. It rose 0.15 percent to 6.0726 per dollar as of 10:04 a.m. in Shanghai, China Foreign Exchange Trade System prices show.
Guotai Junan Securities Co. Shanghai-based bond analyst Li Qing said China’s slowing economy will also increase default probabilities next year. Guotai Junan, the nation’s third-biggest brokerage, forecast economic growth will slow to 7.3 percent next year, from 7.6 percent in 2013.
“Cash supply will probably remain tight and the economy may decelerate from the second quarter of next year,” said Li. The premium on bonds rated AA or lower may widen further, she said.
SocGen’s Yao said some companies averted defaults in 2012 because local governments stepped in to help. CHTC Helon Co., the fiber maker which used to be called Shandong Helon Co. (000677) and became the first company to lose its investment-grade rating in December 2011, repaid 400 million yuan of bonds in April 2012 even as it failed to make loan repayments.
“Whether there’ll be a bond default or not is mostly a political decision,” said Yao. “Huge maturing debt and cash shortages provide conditions for the first default to happen. But whether it will depends on the leadership’s willingness to make the right choices.”
– BLOOMBERG
The Dangote Petroleum Refinery and Petrochemicals is of the view that deregulation should not be used as a justification for the importation of off-spec petroleum products or the undermining of Nigeria’s national interests.
This was contained in a statement on Tuesday by Dangote’s Group Chief Branding and Communications Officer, Anthony Chiejina.
The counsel came in response to remarks by Chief Executive Officer of Pinnacle Oil and Gas Limited, Robert Dickerman, on the importation and blending of petroleum products, which he framed within the context of a “deregulated commodity market.”
However, the Dangote Petroleum Refinery is of the view that his argument for a deregulated market could not obscure the serious implications of his actions, which, it claimed, not only threatened the integrity of Nigeria’s energy sector but also endangered the welfare of its citizens.
While reiterating support for deregulation and industrialisation, the Dangote Refinery emphasised that the support must be grounded in a commitment to the sustainable growth of Nigeria’s economy, while shielding the people from exploitation.
The refinery made it clear that the health and safety of Nigerians should never be compromised in the pursuit of profit.
According to the statement, “The Dangote Petroleum Refinery and Petrochemicals Company has long been an advocate for deregulation and industrialisation in Nigeria, but our support is rooted in a commitment to the sustainable growth of the country’s economy and the protection of its people from any exploitation. Unlike Dickerman’s view, deregulation should not be a licence for the importation and distribution of off-spec products or the subversion of national interests.”
The company also noted that, as an American, Dickerman should be well aware of how his own country protects its industries. It pointed to several recent examples from the United States to underline the point.
For instance, U.S. President Joe Biden recently opposed the sale of U.S. Steel to Japan’s Nippon Steel, stressing the importance of maintaining strong American steel companies supported by American workers — an example of protectionism that prioritises national economic interests over short-term profit.
Similarly, the U.S. has taken action to restrict the use of Chinese-made cranes in its ports, citing national security concerns. The U.S. has also imposed a 100% tariff on electric vehicles and a 50% duty on medical equipment imported from China, further demonstrating its commitment to safeguarding domestic industries.
The U.S. has also ramped up efforts to boost its own production of computer chips and medical supplies, driven by national security concerns and the need for economic self-sufficiency. Furthermore, during his presidency, George W. Bush used anti-dumping laws to impose tariffs on a range of Chinese goods that were considered to be unfairly priced.
“It is therefore perplexing that Dickerman, with all his experience in the U.S. market, would advocate for the importation and blending of petroleum products to Nigeria under the claim of deregulation and a free market. The fact is that he had deceitfully approached us and pleaded that we extend the pipeline from our refinery to Pinnacle’s tank farms for the purpose of blending our high-quality products with their imported products and selling them to Nigerians. We categorically rejected his request to extend our pipeline to their tank farms for such devious purposes because it would be a betrayal of the Nigerian people’s trust. The health and safety of Nigerians cannot—and should not—be compromised for profit,” the statement added.
The company also raised concerns over Pinnacle Oil’s decision to lease its tank farms to a company without any retail outlets in Nigeria, questioning the strategic intent behind such actions, particularly given that the farms are located just 500 metres from Dangote’s refinery.
It expressed its vigilance regarding the coordinated efforts to undermine the Dangote Refinery, drawing parallels to the fate of refineries in Port Harcourt, Kaduna, and Warri.
Consequently, the Dangote Petroleum Refinery called on the government, patriotic Nigerians, and local businesses to remain steadfast in defending the country’s sovereignty and economic independence.
“The choice we face is between fostering industrialisation or allowing Nigeria to remain a dumping ground for inferior products while exporting jobs. For nearly three decades, cartels and their collaborators have sabotaged efforts to develop Nigeria’s refining capacity, keeping the country dependent on imported products. The time has come to end this cycle of exploitation and ensure that Nigeria’s energy sector works for the benefit of its people,” it added.
Reiterating belief that a strong, self-sufficient energy sector is vital for Nigeria’s economic growth, the Dangote Refinery affirmed that it will continue to advocate for policies and practices that protect both industries and the well-being of all Nigerians.
The company also expressed its support for healthy competition that drives innovation and quality, and looked forward to the upcoming commissioning of the four state-owned refineries, as promised by the NNPC Ltd.
“At Dangote Petroleum Refinery, we are committed to ensuring that Nigeria becomes self-reliant in petroleum production, and we welcome competition that drives innovation and quality. However, we will never allow the continued importation and blending of petroleum products, nor the deliberate destruction of our national economy. We believe that a strong, self-sufficient energy sector is vital to Nigeria’s economic growth, and we will continue to advocate for policies and practices that protect our industries and the well-being of all Nigerians.
“We eagerly anticipate the coming on stream of the Kaduna, Warri, and Port Harcourt refineries before the end of this year, as promised by the Group Chief Executive Officer (GCEO) of NNPCL, Mele Kyari. This milestone will not only end all baseless rumours of monopoly but also position Nigeria as a refining hub for petroleum products in Africa,” it concluded.
Chevron Nigeria Limited (CNL), operator of the joint venture between the Nigerian National Petroleum Company Limited (NNPC Ltd) and CNL, has expressed commitment to providing a seamless and inclusive experience for all applicants participating in the selection tests for its available job opportunities.
According to the General Manager, Policy, Government and Public Affairs, at CNL, Olusoga Oduselu, the company strategically achieves this by leveraging reputable organizations and technology.
Biztellers reports that the CNL retained Dragnet Solutions Limited (DSL), a provider of online assessment services with relevant expertise, to administer aptitude tests to candidates for its available job opportunities.
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Olusoga explained that the online assessments allow candidates to participate from various locations to save time and promote inclusivity for candidates who are constrained to participate in physical assessments.
He maintained that this strategy “provides equal opportunities for all candidates, including those with disabilities.”
According to Oduselu, the CNL was aware of some complaints of challenges by some candidates during their scheduled test period. To address these challenges, CNL engaged with DSL and deployed repeat tests for those who complained of technical hitches during the tests and those who could not participate in their scheduled tests.
“All isolated cases of system glitches have been addressed by our consultant, and the transparent, all-inclusive recruitment process continues. The applicants and our various stakeholders have commended this act of goodwill,” he stated.
The CNL’s recruitment process, including assessment, is transparent and fair and provides equal opportunity for all qualified candidates to compete for available job opportunities.
He added that the CNL assures its stakeholders that its recruitment process uses appropriate technology and complies with applicable laws and regulatory requirements.
Nigerian comedian and popular skit maker, Chibuike Josh Alfred, known by his stage name Josh2Funny, has shed light on the profitability of the content-creating industry.
In a recent interview with Echo Room, Josh2Funny highlighted the impressive financial potential that content creators can achieve, noting that it is possible for them to comfortably afford multiple luxury cars, including up to four Lamborghini vehicles.
Speaking candidly, Josh2Funny emphasised that content creation has become an extremely lucrative field due to the constant demand for fresh and engaging material. “If you want to buy four Lamborghini from content creation, you can buy it,” he said.
His remarks underscore the significant revenue opportunities available in the digital content landscape.
Josh2Funny explained that the continuous consumption of online content is what drives its profitability. “What do you think we are doing in the content-creating industry? Are we joking? You all are with your phones, when you’re in the bathroom, when you’re [using the restroom], you’re consuming our stuff. It’s like pure water,” he stated.
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The comedian further elaborated that businesses or industries that deliver products consumed on a daily basis often see the most substantial financial returns. Content creation, with its high rate of daily consumption by audiences worldwide, aligns perfectly with this model.
“People are out there, consuming our content every time,” he said, reinforcing the idea that the reach and influence of content creators have never been more extensive.
Josh2Funny’s insights reveal why the content-creating industry has become a lucrative career path for many in Nigeria and around the world. With the continuous growth of social media platforms and the public’s insatiable appetite for entertainment and relatable content, creators are finding new and innovative ways to monetize their craft.
This shift not only highlights the potential for significant financial gain but also showcases the evolving landscape of digital media, where influencers, comedians, and skit makers can turn creativity into a sustainable and highly rewarding business.
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