This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

'Fail-Safe' Bond Default Shakes Chinese Bond Market

Stocks in this article: CHLC DSUM

NEW YORK (TheStreet) -- A corporate bond market that raised $77 billion for Chinese companies in 2013 is losing its innocence after a struggling solar panel manufacturer warned of a pending interest payment default.

A few ETFs cater to the Chinese bond market, including PowerShares Chinese Yuan Dim Sum Bond (DSUM) and Market Vectors Renminbi Bond ETF (CHLC). Both have been treading water, pretty much breaking even over the past year and YTD.

Chaori Solar Energy is shaking up this market. Chaori is expected to become the first corporate bond issuer to stiff investors on the Chinese market, which has been an increasingly important fund-raising tool for the nation's small and mid-sized companies ever since bank credit tightened after the 2008 global financial crisis.

A Chaori notice posted by the Shenzhen Stock Exchange, where trading in the company's shares was suspended Tuesday, March 4, said it could pay only 4 million yuan toward 89.8 million yuan in interest on its bonds due Friday, March 7.

Investors -- apparently including some foreign institutions -- were expecting their share of the interest on the 1 billion yuan in five-year bonds they bought in March 2012.

The default warning marked a turning point for the nation's bond trade, according to a China Merchants Securities research report. Until now, bonds and most credit products in China have been touted as nearly fail-safe thanks to a tradition of outright or indirect bailouts by the government and state-owned banks.

"This means that the myth of the indomitable payment in China has been smashed," the report declared. "The significance of this event, no matter how you look at it, cannot be overstated."

Bond defaults are likely to become more common, the report said, raising corporate financing costs to cover credit risks.

The government, through an ongoing economic reform campaign, last year signaled its intent to start foregoing bailouts and let the market shape the credit sector. But in January, a last-minute bailout for a teetering 3 billion yuan China Credit Trust wealth product sold to 700 retail investors raised questions about the government's sincerity.

Apparently it's different this time. China Central Depository & Clearing, the government agency that oversees the bond market, said Wednesday that "the Chaori event" had sparked "significantly" higher bond market yields on government treasury, policy bank and corporate bonds.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs