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MarketScreener Homepage  >  Equities  >  Shanghai Stock Exchange  >  China Everbright Bank Company Limited    601818   CNE100000SL4

CHINA EVERBRIGHT BANK COMPANY LIMITED

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China probe into state miner's shock bond default reveals market defects

11/20/2020 | 04:12am EST

SHANGHAI, Nov 20 (Reuters) - China's investigation into the shock bond default by a state-owned coal miner hit shares of its listed underwriters on Friday, while shedding light on the creaking infrastructure of the country's $4.4 trillion corporate bond market.

Top-rated Yongcheng Coal & Electricity Holding Group defaulted on a 1 billion yuan ($152 million) bond on November 10, stunning investors.

Shares of Industrial Bank Co and China Everbright Bank fell in Shanghai on Friday after regulators said the two underwriting banks were suspected of misconduct.

Hong Kong-listed Zhongyuan Bank Co was also investigated.

Recent bond investors' "flight to quality" exposes defects in China's bond market infrastructure, said Wang Qian, financial professor at Tongji University.

More specifically, the scandal calls into question a popular model in China's interbank market, where banks underwrite bonds for their loan clients, who then use the proceeds to repay loans or roll over debt.

In Yongcheng's case, the three lead underwriters are also lenders to its parent, Henan Energy and Chemical Industry Group.

"Some banks even underwrite bonds for companies to which they're no longer willing to lend," a bond fund manager said on condition of anonymity.

Wang added that companies should sell bonds mainly to fund business operations, rather than to repay loans.

The default of the AAA-rated Yongcheng bonds further tarnishes China's credit rating business. Over 90% of defaulted bonds had A, double A, or triple A ratings at the time of delinquency, which had helped inflate prices, Wang said.

If rating agencies fail to signal a borrower's creditworthiness truthfully, "to some extent, they're misleading investors," said Ligang Liu, chief China economist at Citi Research.

That partly explains why global investors are rushing into Chinese sovereign bonds, while largely avoiding higher-yielding Chinese corporate bonds.

"We don't invest in the onshore market, exactly for those reasons," said Tiansi Wang, senior credit analyst at Robeco in Hong Kong.

"We think, so far, there's no proper risk pricing in that market. For us, as fundamental investors, it's not a market to play."

($1 = 6.5754 Chinese yuan) (Reporting by Samuel Shen and Andrew Galbraith; additional reporting by Tom Westbrook; editing by Jason Neely)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
CHINA EVERBRIGHT BANK COMPANY LIMITED 2.77% 4.08 End-of-day quote.2.26%
INDUSTRIAL BANK CO., LTD. 6.37% 22.71 End-of-day quote.8.82%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.00% 6.472 Delayed Quote.-0.48%
ZHONGYUAN BANK CO., LTD. 0.00% 1.04 End-of-day quote.0.97%
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Financials
Sales 2020 142 B 21 944 M 21 944 M
Net income 2020 35 283 M 5 445 M 5 445 M
Net Debt 2020 - - -
P/E ratio 2020 6,06x
Yield 2020 4,65%
Capitalization 197 B 30 382 M 30 380 M
Capi. / Sales 2020 1,38x
Capi. / Sales 2021 1,25x
Nbr of Employees 46 104
Free-Float 63,2%
Chart CHINA EVERBRIGHT BANK COMPANY LIMITED
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Technical analysis trends CHINA EVERBRIGHT BANK COMPANY LIMITED
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TrendsBullishNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 16
Average target price 4,25 CNY
Last Close Price 4,08 CNY
Spread / Highest target 72,3%
Spread / Average Target 4,17%
Spread / Lowest Target -28,9%
EPS Revisions
Managers and Directors
NameTitle
Jin Liu President & Executive Director
Xin Li Chairman-Supervisory Board
Xiao Peng Li Chairman
Hong Lu Executive Director & Vice President
Jun Hao Wu Member-Supervisory Board