Credit differentiation intensifies, and risks may be fermenting
- Credit bonds 2020 second quarter strategy
(Haitong Fixed Income Du Jia Wang Qiaozhe)
Summary
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Credit bonds are still in a bull market, and interest rate spread bottoms and rebounds.
) Review of the credit bond market. After , the loose currency and related support policies hedged the epidemic. The downward trend of yields continued, coupled with strong demand for credit bonds, credit spreads of various levels were also compressed to a lower level. After March, the loose policy continued, but investors' pursuit of yields and concerns about credit risks made the game increasingly intense, and the credit spread bottomed out and rebounded. Judging from the grade spread and term spread, there was no obvious avoidance of low-level levels after the outbreak of the domestic epidemic, but the risk preference decreased after March, and high-level short-term performance was better. ) The rating adjustment has not changed much year-on-year, and the number of new default entities has decreased year-on-year. added 10 substantive defaults and extension entities from January to March this year, and bond replacement methods appeared. ) Level 1 net financing is better and the structure has been improved. htmlFinance increased sharply from 32 to March, with corporate financing demand and interest rates at a low level, and strong willingness to issue. The financing structure has improved, and net financing of private enterprises and low-rated industrial bonds has become positive. In addition, the issuance of epidemic prevention and control bonds from February to March is booming. -
Industrial bonds: The impact is different, real estate companies have funds that are king
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The impact of the epidemic on real estate bonds.
) Short-term impact is inevitable. The epidemic mainly impacted the start of construction and sales of the real estate industry, and the importance of real estate companies' sales collection has been greatly improved. ) The pressure on real estate debt repayment in the second quarter is relatively high. We expect the total repayment of real estate bonds to be around 140 billion yuan in the first half of 2020. There was a small peak in debt repayment in April. In terms of policy, the current policy of is still one policy for each city, and its intensity is limited, and there is still no signal of relaxation of the financing side policy. ) Fund chain and stress test situation before the epidemic. From the perspective of the bond issuing sample real estate companies, the 2019 interim report showed that the capital chain of real estate companies was relatively healthy at that time. After the epidemic, real estate companies will definitely have financial pressure. We conducted a stress test and the results showed that most real estate companies can alleviate liquidity pressure by reducing land acquisition and expenditure. 5) How do you view real estate bond investment? First, the overall risks are controllable; second, capital-friendly real estate companies are a good time to acquire land this year. In general, real estate companies are the king of funds and can still be allocated with the best. other industrial debt situations that have been hit hard by the epidemic. The more impacts of are the leisure service industry, commercial trade, transportation industry, etc. With the continued epidemic and the spread of overseas epidemics, manufacturing enterprises and enterprises that rely on trade and international industrial chains have also suffered a major impact. From the perspective of repayment pressure, compared with other industries, the repayment pressure on private trade enterprises is relatively high. -
Municipal Investment Bonds: Appropriate participation opportunities, credit differentiation
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The outbreak of the epidemic is dangerous and opportunity for urban investment. 's "danger" is first reflected in the epidemic weakening the financial resources of local governments, debt risks in some regions have heated up, and some urban investment companies have also suffered a major impact on their own business. The "machine" lies in stabilizing the infrastructure of and improving the importance of urban investment and financing environment. What is the impact of the epidemic on local financial resources? First of all, direct fiscal expenditure and interest subsidies are not large, but considering that tax and fee reductions and land transfer income are affected, the contradiction between fiscal revenue and expenditure is prominent. In the future, we will pay attention to whether the deficit ratio will be adjusted and whether other measures will be introduced. As for the issue of hidden debt, the recent information conveyed has not changed. overall municipal bonds are more favorable. Judging from the experience of the past few years, changes in urban investment and financing policies have a huge impact on urban investment bonds, and are even greater than the impact of local financial resources. After the outbreak of the epidemic, the economy is under pressure and the urban investment and financing environment is improving. Second, most urban investment companies focus on infrastructure business, which has suffered a certain impact but is not much impact. Finally, local financial resources are likely to be compensated under active fiscal policies. Overall, the policies since the epidemic have been beneficial to urban investment. , but differentiation is becoming increasingly obvious.Financing of low-rating platforms is still difficult. Although many AA-level urban investment entities have issued bonds recently, they are mainly in the coastal areas of Jiangsu, Zhejiang, Fujian and Hui, followed by central provinces, and rarely issue them in areas with high debt risks. The issuance period is shorter than that of AA+, and medium- and long-term financing is more difficult. Judging from the issuance of epidemic prevention and control bonds, they are mainly AAA-level and AA+-level entities. Do not sink blindly in municipal bonds. municipal bonds have an appropriate opportunity to participate, low ratings, short duration operation, medium and high ratings can appropriately extend the duration. Be cautious in areas with high debt pressure and poor economic and fiscal strength, and local debt risks may still be exposed. If you want to reduce your qualifications, it is recommended to pay attention to areas such as Anhui, Jiangxi, and Henan. Starting from the platform's own situation, one should look at the urban investment business and the other should look at the debt structure adjustment. If the financing side is loose, you should seize the opportunity to adjust the debt structure instead of uncontrolled financing.
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Second quarter strategy: credit differentiation intensifies, risks may be fermented
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Credit spreads are not much room for compression. The current interest rate spread level of is still very narrow, and there is limited room for compression in the future. On the contrary, we should pay attention to whether credit risk will rise as the pressure on credit bond maturity increases in the second quarter. There have been many credit incidents since the Spring Festival, and most of them are the continued release of existing risks. After the wave of private enterprise defaults from 2018 to 19, the existing risks of private enterprise bonds have been greatly released, and most of the remaining entities have undergone "market test". However, the impact of the epidemic on the operations of the main body must be paid attention to. Although the financing environment has been loose recently, there is also differentiation. The market's ability to identify credit risks has been continuously improved, and financing of high-risk entities is still relatively difficult. We believe that it is not ruled out that the impact of the epidemic will become a catalyst for risk outbreak.
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credit is still differentiated. In investment, it is recommended to pay attention to real estate bond opportunities, and the logic of real estate companies’ funds is clear. It is recommended that municipal bonds still participate. Low ratings and short-term operations are operated. Medium and high ratings can be appropriately extended. If you want to lower your qualifications, you will definitely not encounter the worst. Regionally, it is recommended to pay attention to areas with a debt ratio of Anhui, Jiangxi, Henan and other regions. Other industrial bonds can dig deep into value. In the context of policies promoting the expansion of credit bonds, we can pay attention to whether there will be investment opportunities for high-quality and light-asset enterprises.
. Credit bonds are still in a bull market, interest rate spread bottomed out and rebounded
.1 Credit bond market review
Credit bond yields continue to decline. The domestic economy stabilized at the end of last year, the progress in Sino-US economic and trade negotiations and other long-term and short-term factors such as strong demand in the bond market were intertwined, manifesting as a volatile pattern. Affected by the epidemic the week before the Spring Festival, risk aversion sentiment has heated up, coupled with strong allocation demand, and credit bond yields have declined significantly. After the holiday, in order to hedge against the epidemic, loose currency and related support policies frequently appeared, and bond market yields continued to decline. Taking the 3-year AA+ medium- and short-term notes as an example, the yield rate has been lower than the 10-year NTD bond for a period of time after February 14. In mid-to-late March, due to the spread of the epidemic abroad and concerns about liquidity crisis, the yields in the domestic credit bond market also fluctuated.
credit spread is at a historical low, but it has bottomed out recently and rebounded. Before the , the risk-free yield declined rapidly, and the credit spreads increased significantly. After the holiday, the market demand for credit bond allocation increased. At the end of February, the credit spreads of various levels were compressed to a historical low, approaching a 16-year low. After March, the easing policy continued, but the credit spread faced an embarrassing situation of "unpressible". Although the pressure on investors to allocate is still high, the pursuit of yields and concerns about credit risks have made the game increasingly intense and the credit spread bottomed out and rebounded.
.2 risk preference has declined
-2html After the outbreak of the domestic epidemic in February, there was no obvious avoidance of low-level levels. The overall rating spread fluctuated sideways since November last year, and there was no obvious trend of compression or expansion. Looking at the shortening of the time, after the holiday, due to the pandemic panic, the preference for low-levels has decreased and the interest rate spread has increased. However, with the support of relevant policies, the interest rate spread has been compressed again and there has not been a significant and continuous increase.
html risk appetite declined in 23 months, and high-level short-term performance was better.html After 33 months, due to overseas factors, the tight US dollar liquidity has caused market concerns, foreign bond markets have fallen, and the risk preference of domestic credit bond markets has declined, which is manifested as the grading interest rate spreads expanding and the maturity spreads rise, indicating that the market prefers medium and high-grade short-term bonds.
.3 rating adjustment has not changed much year-on-year
main rating lowered slightly, and the number of higher ratings remained unchanged. , a total of 31 entities were downgraded from January to March 2019, an increase of 5 units year-on-year, and 21 entities were upgraded, the same as the same period last year.
There are a total of 11 companies that have raised the ratings of industrial debt entities from January to March this year, and the number of companies has been lowered to 28, which has little change compared with the same period last year. The number of municipal bonds lowered the number of entities has increased compared with the same period last year, and the three companies lowered the number of entities all lowered the rating outlook.
.4 new default entities decreased year-on-year
html defaults increased in February. After 's continuous explosion in 2018-19 years, we can see that the distribution of new default entities in 2019 was high at first and then low at the end. There were 10 new substantial defaults and extension entities in January-March 2020, which was not much compared with the same period in 2019, but there were significant increases in the number of new substantial defaults and extension entities in March. In terms of the nature of the enterprise, private enterprises account for 50%. In terms of default amount, the default amount in February was mainly due to the large amount of bonds involved in Peking University Founder Group, and the default amount was relatively large in that month.
stock risks continue to be cleared. In terms of the types of defaults in , there are 5 companies that have principal and interest extensions; for example, Kangmei Pharmaceutical Co., Ltd., Dalian Tianshen Entertainment Co., Ltd. and Beijing Peking University Science and Technology Park Construction and Development Co., Ltd., there have been problems with the guarantor before the default, and the default in the bond market is a stock risk that continues to be cleared.
has a bond replacement method. March 2, 2020 Beijing Sande Environmental Engineering Co., Ltd. announced that it plans to issue a first phase of replacement notes, specifically for replacing 17 Sande Engineering MTN001 in a non-cash manner. As of the deadline of the offer period, the total amount of replacement was 400 million yuan, and the amount of replacement was 100 million yuan. The first bond replacement order for the Shenzhen Stock Exchange was Huachangda Intelligent Equipment Group Co., Ltd., which announced on March 17, 2020 that it had launched a replacement offer for "17 Huachang 01". The success rate of this replacement is 64.86%, and the remaining part has been redeemed.
extension or bond replacement is mostly when the issuer has already experienced liquidity shortage or even brokenness, and business difficulties, and negotiates with existing investors or issues replacement offers. The later redemption of replacement bonds or bonds must also be determined by whether the issuer's operation and debt repayment ability have been improved within the extended period. On the other hand, whether this situation will increase and the credit risks of the issuer itself are worth paying attention to.
.5 first-level net financing is better, and the structure has improved
.5.1 Overall financing overview
credit bonds have better net financing. Judging from the overall net financing situation of credit bonds (medium notes, short-term bonds, corporate bonds, corporate bonds and PPN), the net financing amount from January to March this year was about 1.8 trillion yuan, an increase of about 1.1 trillion yuan year-on-year, and financing rebounded significantly. Among them, the net financing amount in February and March this year increased significantly year-on-year, mainly because the resumption of work was slow under the influence of the epidemic, and the demand for corporate financing appeared, coupled with the low interest rates, and the willingness of enterprises to issue was strong. In addition, the issuance of epidemic prevention and control bonds under the green channel is faster. The financing structure problem of
has improved. Specifically, the net financing gap of private enterprises narrowed from October last year and turned positive in February this year. The issuance of epidemic prevention and control bonds has also played a certain supporting role in private enterprises' financing.
In addition, the net financing amount of credit bonds of low-rated entities has continued to be positive since August last year, and the financing in March this year increased significantly year-on-year. Among them, the net financing of low-rated industrial bonds turned positive from December last year, while the financing of low-rated municipal bonds continued to be inflows.
From the industry perspective, the industries that issued more bonds in February and March mainly include utilities, comprehensive, mining, transportation and other industries. Considering the difference in bond balance distribution, we will adjust the issuance amount divided by the corresponding type of credit bond balance on February 1. It can be seen that the total issuance of chemical and leisure services accounts for a high proportion.In terms of regional distribution of urban investment bond issuance, the top ten and most of the total bond issuances are Beijing, Anhui, Hubei and other provinces and cities.
.5.2Epidemic Prevention and Control Bonds are issued hotly
From the issuance overview, 2-March issued a total of about 320 epidemic prevention and control bonds of major credit bonds, with a total issuance amount of nearly 250 billion yuan. Epidemic prevention bonds are mainly short-term, with the issuance of 1 year and below accounting for nearly half of the total, and the three-year term is also relatively large, accounting for about one-third. In terms of the regional characteristics of issuance, the total issuance amount of provinces and cities such as Beijing, Hubei, Guangdong, and Shanghai is relatively high. Judging from the mid-month epidemic situation, as of February 14, the top five provinces in the country with confirmed cases of new coronavirus pneumonia in the country were Hubei, Guangdong, Henan, Zhejiang and Anhui, which is slightly different from the regional distribution of epidemic prevention and control bond issuance, and is also related to the difference in the size of corporate bond financing needs in various places.
From the perspective of issuer characteristics, a total of 260 entities issued epidemic prevention bonds from 2 to March, and some entities issued a high total issuance amount, such as Baosteel Co., Ltd. and China Shipbuilding Heavy Industry Group Co., Ltd. , etc., but the majority of entities issued less than 1 billion yuan. The issuers mainly include local state-owned enterprises and medium and high-level enterprises.
From the industry perspective, after we listed the urban investment separately, there are 68 urban investment issuing entities, with more issuers in Jiangsu and Zhejiang, which is also related to the large stock of urban investment bonds in Hubei. There are 6 urban investment companies that issue epidemic prevention bonds in Hubei. In terms of industrial bonds, there are many entities that issue epidemic prevention bonds in industries such as comprehensive, transportation, and commercial trade.
From the perspective of the purpose of the funds raised, there are three main types of funds raised by epidemic prevention and control bonds. One is to "borrow new and repay old", the other is to prevent and control the epidemic related uses, and the third is to supplement other liquidity or working capital. The proportion of some bond funds used for epidemic prevention and control is relatively high, such as 20 Wumart (epidemic prevention and control bond) SCP002, 20 Jiuzhoutong (epidemic prevention and control bond) SCP004, 20 Xiamen Airlines (epidemic prevention and control bond) SCP003, 20 Nanshan (epidemic prevention and control bond) SCP001, 20 Muyuan SCP002, etc.
Epidemic prevention and control bond subscription is booming, and the issuance interest rate is relatively low. The subscription of epidemic prevention and control bonds is booming. From the final issuance scale of some issued epidemic prevention and control bonds is larger than the planned issuance scale, it can be seen that for example, 20 Kelun (epidemic prevention and control bonds) SCP001 plans to issue 500 million yuan, and the actual issuance of 800 million yuan; 20 Days Sli (epidemic prevention and control bonds) SCP002 plans to issue 20 million yuan, and the actual issuance of 500 million yuan; 20 Kelun (epidemic prevention and control bonds) MTN001 plans to issue 600 million yuan, and the actual issuance of 1.2 billion yuan.
Further, we compared the issuance interest rates of the issuance of the issuance of the epidemic prevention and control bonds, and the average valuation yield of the existing bonds of the same entity in the 5 days before the issuance of the epidemic prevention and control bonds. The screening criteria for comparable existing bonds is that the remaining term is similar to the issuance period of the epidemic prevention and control bonds, and the bond types are the same. We have observed that the issuance interest rate of epidemic prevention and control bonds is relatively low. The issuance interest rate of epidemic prevention and control bonds that have been issued and have comparable existing bonds of the same entity is generally lower than the valuation yield of comparable bonds. Among the bonds in the table below, the lowest is 351.81BP and at least 24.11BP.
. Industrial bonds: The impact is different, real estate companies' funds are king
.1 The impact of the epidemic on real estate bonds
.1.1 Short-term impact is inevitable, testing funds security
The epidemic has impacted the start of construction and sales of the real estate industry. The SARS incident in 2003 During the February-April period, when the epidemic was the worst, the monthly completion amount of my country's residential development investment and the monthly sales area of commercial housing both showed a full-year low.
This year, sales offices in various places have been shut down. Under the influence of the epidemic, people's willingness to view and buy houses has also declined significantly, which will inevitably have an impact on real estate sales. In order to cooperate with the country's fight against the epidemic, on January 26, the China Real Estate Association proposed that real estate development companies suspend sales activities in sales offices to strictly prevent the spread of the epidemic. As the national epidemic prevention efforts continue to increase, at least 60 provinces and cities including Hunan, Jiangxi, Guangdong, Hainan, Heilongjiang, Chengdu, Chongqing, Fuzhou, Nanjing, , Suzhou , Hangzhou, and Hefei issued notices requiring the suspension of sales activities in sales offices.
sales recovery is slow. From the high-frequency commercial housing transaction area data in 30 large and medium-sized cities, we can see that the New Year's Eve in 2019 is February 4th. The transaction area data rebounded rapidly with the end of the holiday. By the 11th day, it had reached a level similar to before the Spring Festival. This year, due to the impact of the epidemic, the transaction area was almost frozen. On February 20, with the resumption of work in various places, the transaction area only rebounded. March belongs to a recovery period, but the transaction area in March still decreased by more than 30% year-on-year. Judging from the daily data, the transaction area has just caught up with the same period last year since the end of March. However, one problem should be noted. We believe that the impact of the real estate market in third- and fourth-tier cities is greater than that in the first and second-tier cities. Therefore, when we observe the transaction area in the 30 large and medium-sized cities, it may be more optimistic than the situation in the country. It is reasonable to infer that real estate sales are still in a recovery period at present and even April. Judging from the
area, the impact of real estate companies focusing on Hubei may be greater. On the one hand, the severe epidemic may lead to the end of the local epidemic relatively late, and sales offices, intermediaries, etc. will be shut down for a longer time; on the other hand, a series of events during the epidemic prevention and control process may lead to a decline in local willingness to buy a house.
short-term impact is inevitable, and the importance of real estate companies' sales collection has been greatly improved. Pay attention to the financial pressure of high-leverage real estate companies. : Among the sources of real estate development funds in 2019, 50% come from deposits, advance payments, and personal mortgage loans. Sales collection becomes very important for real estate companies after various financing channels are tightened. The impact of the epidemic on real estate sales will inevitably affect the financial security of real estate companies. Leading companies with tight capital chains, enterprises with excessive business layout in areas with severe epidemics such as Hubei, and small and medium-sized real estate companies with weak risk resistance must be more cautious.
.1.2 Is the real estate policy loose?
Many places have issued real estate support documents. In order to cooperate with epidemic prevention and support the real estate market, has issued some real estate support documents since mid-February.
's policy is concentrated in land market transactions and developers resume work and production . Among them, there are the most policies in land market transactions. is mainly manifested as: delaying payment of land transfer fees, and no late payment or liquidated damages are generated during the extension period (Suzhou, Wuxi , Tianjin, Nanjing, Jinan, Zhejiang, Chongqing, Nanchang, Zhongshan, Jiaxing , Chengde and other places), and land transfer fees are allowed to be paid in installments (Shanghai, Xi'an, etc.). For example, the Shanghai Municipal Planning and Natural Resources Bureau's "Several Land Use Policy on Supporting and Serving the Development of Enterprises with Full Response to the Epidemic" pointed out that "the transferee can apply to the transferor for delayed payment or payment in installments" and the Xi'an Municipal People's Government's " Xi'an Municipal People's Government on Effective Response to the Epidemic and Promoting Stable Economic Development" pointed out that "during the epidemic prevention and control period, the bidding deposit can be determined at 20% of the starting price, and 50% of the land transfer price will be paid within one month after the signing of the transfer contract. After the land use unit issues a letter of commitment, the remaining payment can be paid in installments as agreed in the contract, and the payment period is no more than one year."
The supportive policies of developers to resume work and production are mainly reflected in: the extension of the opening and completion period and the onlineization of government office and approval procedures (Suzhou, Wuxi, Tianjin, Xi'an, Jinan, Shanghai, Chongqing, Nanchang, Zhongshan, Jiaxing and other places).
Wuxi and Suzhou are currently relatively strong. Compared with other cities, Wuxi City has also increased policy easing in tax payment, fund supervision and financing and credit. The "Policy Opinions on Responding to the New Coronavirus Pneumonia Epidemic to Ensure Orderly Construction of Urban and Rural Urban-Rural Development" issued by the Wuxi Municipal Government pointed out that "the extended payment of taxes shall not exceed 3 months in accordance with the law", "The competent department for pre-sale funds supervision can approve enterprises that normally implement the fund supervision measures and apply for the allocation of key supervision funds in advance across one node. Before completing the first registration of real estate, the cumulative application amount shall not exceed 95% of the key supervision funds"", "The original image progress requirements when applying for pre-sale are adjusted to be calculated based on the investment amount, and the pre-sale part can complete more than 25% of the investment" and "enterprises that are severely affected by the epidemic and have difficulty in repaying due to the maturity can be extended, and loans that have expired before June 30, 2020 and whose loan term is within one year will be implemented without repayment."
, while Suzhou adjusted the quotation rules that exceeded the market guidance price in the "Notice of the Suzhou Municipal Bureau of Natural Resources and Planning on Doing a Good Job in Land Transfer-Related Work" issued on February 19, which adjusted the quotation rules that exceeded the market guidance price. Residential (commercial) plots do not require the adjustment price of completion pre-sale license. If the project structure exceeds the market guidance price, it does not require the application for pre-sale license after the project structure is topped off; if it enters a quotation, it does not require the application for pre-sale license after the project is completed and accepted. According to the Suzhou Daily report, on February 28, the Suzhou Municipal Housing and Urban-Rural Development Bureau issued the "Notice on Responding to the Epidemic to Ensure the Stable and Healthy Development of the Real Estate Market", which adjusted the pre-sale conditions and installment pre-sale area, extended the opening and completion time and delivery period, and improved the qualification of house purchase.
html Since February, some demand-side policy easing expectations have emerged. policies to support real estate in various places are still being introduced, and some demand-side expectations have emerged, including whether local governments adjust their provident fund loan policies, whether there will be changes in the bank loan level, and whether certain types of housing will no longer be restricted. Some information has led to the relaxation of expectations of housing market demand in the market.
We believe that it is unlikely to drive the economy by stimulating real estate. First, the attitudes of the central bank and regulatory agencies have not changed at the moment, and they adhere to the positioning of "housing for living, not for speculation". Second, on February 28, the Henan Provincial Government summoned the main responsible person of the Zhumadian People's Government, and according to the report of Securities China, Guangzhou canceled the policy of restricting apartments in the apartments, and some other cities and cities have also withdrawn the documents, which are of certain signal significance. Third, regarding the down payment ratio announced by some banks, the regulatory documents previously mentioned that in non-purchase-restricted cities, commercial personal housing loans for households to purchase ordinary housing for the first time, in principle, the minimum down payment ratio is 25%, and localities can float down by 5 percentage points. Therefore, the minimum down payment ratio of 20% in non-purchase-restricted cities is not a policy adjustment.
Judging from the current policies, it is still a targeted policy for one city, among which the most policies are targeted for the land market. This may be because the epidemic affects local finances, and cities with greater pressure may relax the land market first. At present, there are few loose policies for financing for home buyers and real estate companies, and there is still certain uncertainty in the future direction.
, especially the financing side of real estate companies, has not yet had a clear signal of relaxation. "Economic Reference News" published a report titled "Trust companies welcome windows to guide financing supervision to increase investment" on April 2, saying that in addition to "de-channel and control real estate", "gradual reduction of financing trusts" is becoming a new goal of trust supervision. According to Xinhua News Agency , local banking and insurance regulatory bureaus conveyed the trust supervision requirements for 2020 to trust companies in their jurisdiction, including continuing to vigorously strengthen the management and control of real estate trust business. In principle, the balance of real estate trust assets of each trust company in 2020 shall not be higher than the stock scale at the end of 2019. In addition, the policies for domestic and overseas financing have not changed. In mid-January, bank credit still must firmly implement the requirements of "housing for living, not for speculation", strictly implement regulatory rules such as credit concentration, and strictly prevent credit funds from flowing into the real estate field in violation of regulations. Recently, the requirements for credit have also tended to support small and medium-sized enterprises, and the real estate credit policy is likely to not change.
.1.3 What is the pressure on real estate bonds to mature in recent months?
020 first half of 2 htmlRepayment pressure on real estate debt in February is the least, and html will have a peak in February. combined with the information of real estate bond stock bonds, we expect the total repayment volume of real estate bonds in the first half of 2020 to be about 140 billion yuan, of which the rebate amount is estimated at a ratio of 35%. The total volume is significantly lower than last year. In terms of monthly income, the maturity volume from January to March is still relatively small, both of which are 22 billion and below, of which the repayment pressure in February is the smallest; in April, it entered a small peak in debt repayment, with the monthly repayment volume likely to be nearly 33 billion.
Real estate companies have the habit of financing at the end of the year, providing a buffer for January-March. Judging from the situation in recent months, domestic real estate bonds were issued in large quantities in November 2019, with net financing amounts plus asset-backed securities that month approaching 25 billion yuan. In December, real estate asset securitization products were issued in large quantities, and the total financing amount was also positive. Overall, real estate companies still raised a lot of financing this year before the New Year, which is enough to provide a buffer for the maturity in January-March.
.1.4What is the capital chain of real estate companies before the epidemic?
We selected enterprises with existing credit bonds and Shenwan industry classification as real estate, excluded the urban investment platform in the Wind category, deleted the companies with real estate business revenue in 2018 and had defaulted in 2018. We also refer to the "2019 Top 500 Real Estate Development Enterprises List" released by the China Real Estate Industry Association, and adjusted some leading enterprises that were not in the Shenwan real estate industry classification and enterprises that did not have real estate business revenue share. At the same time, considering the consolidation of parent and subsidiary companies, enterprises with missing financial data and local state-owned enterprises with a certain platform color were deleted. Finally, there were 88 real estate companies with sample bond issuance.
We classify the asset scale as of the end of June 2019, and define the asset scale of more than 280 billion as large real estate companies, with a total of 17, 100 billion to 280 billion as medium-sized real estate companies, with a total of 31, and less than 100 billion as small real estate companies, with a total of 40. Considering that there are many missing reports in the third quarter of 2019, we mainly use the data from the interim report in 2019 for research. Specifically:
9, the year-on-year growth rate of real estate companies' cash funds was still about 16%. The overall financing environment in 19 continued to rebound at the end of 2018, and real estate companies also improved. As of the end of June 2019, the sample's total cash capital was approximately 2.3 trillion yuan, an increase of approximately 5% and 16.7% from the end of 2018 and the same period in the previous year. The year-on-year growth rate of monetary funds has declined compared with the same period in the previous year.
point large, medium and small real estate companies, in terms of cash growth rate, large real estate companies have accumulated funds rapidly around 2016 years, and their growth rate has remained relatively stable since 2018; medium-sized real estate companies have maintained a relatively high growth rate of more than 25% in 2018, which is a relatively high level; small real estate companies have not had a high growth rate of cash growth in recent years, and at the end of June 2019, the year-on-year growth rate of cash growth was about 16%. The growth rate of monetary funds is affected by many factors. In addition to the expansion of business scale, accelerated turnover or increased financing, it may also be caused by asset restructuring. Some small real estate companies may also be due to the reduction or stopping of continuing to acquire land and waiting for existing projects to recover funds, and may also be due to the increase in monetary funds caused by the disposal of assets.
Judging from the short-term debt repayment indicators, large and medium-sized real estate companies are stronger. We select monetary funds/(short-term loans + non-current liabilities due within one year) to measure short-term debt repayment ability. We can see that the short-term debt repayment indicators of real estate companies have basically remained stable for 17 years, and the coverage of monetary funds of medium-sized real estate companies on short-term debt has been enhanced. Judging from the data as of mid-2019, large and medium-sized real estate companies have strong short-term debt repayment capabilities, around 1.5, while small real estate companies have only about 1.07 in this indicator, and their short-term debt repayment capabilities are still relatively weak.
Free cash flow has a narrow gap. sample real estate companies generally narrowed their free cash flow gap in 2018 compared with 2017, mainly due to the significant increase in net cash flow in operating activities. The free cash flow gap in the first half of 2019 narrowed compared with the same period in 2018.As for different types of real estate companies, we use the free cash flow gap/total assets to measure the gap. The free cash flow gap for large and medium-sized real estate companies considering the asset scale is greater than that of small real estate companies. The main reason is that the net cash outflow in investment activities is large, mainly manifested in cooperative development and other factors. The net cash flow of small real estate companies in the operating activities in some annual sample can cover the net outflow of investment activities.
financing covers the free cash gap better. All types of real estate companies have good financing coverage, among which small real estate companies have positive free cash flow in 2018.
Cash inflows of different types of real estate companies constitute differentiation. The sample is mainly based on sales collection. In 2018, the cash inflow of large real estate companies selling goods and providing services accounted for nearly 50% of the total cash inflow, and it has further increased compared with 2017. Medium-sized real estate companies account for a larger proportion of cash inflows from obtaining loans and issuing bonds than other types of real estate companies, and they are more dependent on external financing.
Other cash inflows of small real estate companies account for a large proportion, mainly due to receipt of other cash related to business activities. In 2018, other cash inflows related to business activities of small real estate companies accounted for about 41% of operating cash inflows. The cash inflows related to other operating activities of some small real estate companies accounted for more than the cash inflows related to business activities of small real estate companies provided by sales of goods. Other cash related to business activities is mainly transactions, as well as deposits and deposits collected.
.1.5 Sample cash flow stress test for real estate companies
We want to do a stress test on the cash flow security of bond-issuing real estate companies. The impact of the epidemic on the real estate market in different cities will be different, but in order to simplify the analysis, the differences in the distribution of land reserves of real estate companies will be ignored first. The sample enterprises selected 56 bond issuing real estate companies based on the previous chapter, excluding the missing data and the scale of existing bonds that does not exceed 500 million. Furthermore, we divide sample enterprises into large, medium and small real estate companies according to the asset scale. (For details, please refer to "Real Estate Enterprises' Funds are King, You Can Still Alternatively Allocation (Updated Version)")
Assuming : Financing remains flat, real estate companies suspend land acquisition, sales collection in the first half of the year decreased significantly in 0% ; assuming : Financing remains flat, real estate companies do not reduce land acquisition, sales collection in the first half of the year decreased significantly 0% .
How to estimate the scale of debt repayment cash expenditure in the first half of 2020? The 2019 annual report has not been fully released yet, so we can use the relatively complete 2019 interim report data. The short-term debt disclosed in the mid-2019 is the scale of debt due in the next year. Can this data be used to estimate the debt repayment cash expenditure in the first half of 2020?
First of all, is the scale of medium- and short-term debt in the corporate financial report the scale of debt repayment cash expenditure in the next year? We counted the cash expenditure of the sample enterprises for repaying debts within one year from mid-2018 (i.e., the cash expenditure account for repaying debts within the second half of 2018 and the first half of 2019), which was compared with the medium- and short-term debt scale in the previous 2018 years, and found that the proportion of most real estate companies exceeded 1. The reason for this is that real estate companies will have short-term financing in less than one year, and the other is that there may be early repayments, such as replacing high-cost debts with low-cost debts. However, this proportion of most sample real estate companies will not exceed 3. If we remove some extreme values, we will take the average value and assume that this proportion is 1.5.
Secondly, are the debt repayment pressures of real estate companies in the first half of the year and the second half of the year the same? According to the existing data, we selected two sets of time periods for comparison, namely the second half of 2018 and the first half of 2018, the second half of 2018 and the first half of 2019. We used the cash expenditure of real estate companies to repay debts within the two time periods to obtain a proportion. The results show that different real estate companies have different differences, fluctuating up and down 1. After removing the extreme value, this proportion averaged around 1.3. Based on this, we assume that the debt repayment cash expenditure will also have a ratio of 1.3:1 in the second half of 2029 and the first half of 2020.
After assuming these two ratios, we can roughly estimate the cash expenditure of real estate companies in the first half of 2020, that is, (2019 medium- and short-term debt) *1.5* (1/2.3).
Next, we can compare the debt repayment cash gap in the first half of 2020 with the inflow of cash flow in financing in the first half of 2020 to determine if the financing environment of real estate companies in the first half of this year is similar to the easing in the same period last year, under different assumptions, whether there is a financing gap, or whether there is a significant increase in financing in order to maintain the balance of funds.
The cash gap in debt repayment in the first half of 2020 can be used to subtract the cash used to repay debts before financing from the debt repayment cash expenditure we estimated above. Among them, cash that can be used to repay debts before financing = cash in the beginning of the period + cash received from selling goods and providing services + cash received for other business activities + tax refunds + cash inflow for investment activities + cash inflow for financing activities - cash paid for purchasing goods and receiving services - cash paid to employees and cash paid for employees - various taxes and fees paid - cash paid for other business activities - cash inflow for investment activities - cash paid for distribution of dividends, profits or interest payment - payment of other cash related to financing activities
The final calculation results are shown in the table below. Judging from the results, if it is Assumption 1, sales in the first half of the year will decrease by 30%, but real estate companies suspend land acquisition. As long as financing can maintain the level of the same period last year, more than 70% of real estate companies' capital chains can maintain balance. Furthermore, among enterprises with financing gaps, the proportion of those who need to significantly increase financing by more than 50% is small, less than 10%.
Of course, if real estate companies continue to maintain the pace of land acquisition, assuming that there are a large number of real estate companies under 2, there will be problems with the capital chain. More than 70% of real estate companies have a financing gap and need to expand financing; more than 40% of real estate companies need to increase financing by more than 50%.
In general, under the assumption that real estate companies suspend land acquisition and financing are the same as the same period last year, even if sales are impacted, about 70% of real estate companies' capital chains are still safe and there is no need to expand additional financing. But if you still want to maintain the pace of land acquisition, the pressure on the capital chain of most real estate companies will be highlighted.
Our calculation is a very rough result, containing many assumptions, and there may be unreasonable aspects. It is also two more extreme assumptions that suspending land acquisition in the first half of the year or maintaining the pace of land acquisition are also two more extreme assumptions. We believe that in the first half of the year, we should see that real estate companies will reduce their expenditures and reduce land acquisition under the pressure of cash flow. The funding situation will be more stressful than Assumption 1, but there may be some positive policy changes on the financing side.
Overall, we believe that the capital chain of most bond-issuing real estate companies in the first half of the year is safe, and there will be a relatively obvious differentiation among companies. It is recommended to pay attention to the risks of individual real estate companies with tight capital chains.
.1.6 How do you view real estate bond investment?
cash flow is under pressure, but the overall risk is controllable. First, from the perspective of the pressure of real estate debt repayment, the pressure on real estate debt maturity in the first quarter is not very high. There was a small peak in debt repayment in April, but real estate companies have the habit of financing before the end of the year, providing a funding buffer for January-March. If the impact of the epidemic does not develop until the second quarter, the impact will be controlled overall;
Second, from the perspective of policy, the current policy is still one policy for one city, and we expect the relaxation of real estate companies' financing end will be slow. In all industries affected by the impact, although real estate is under pressure, it is relatively not so tense. The current policies are still one policy for each city, and most of them are in the land market. The relaxation of financing policies may not be so fast, but there is no window guidance, but it is highly likely that it is controllable and targeted. The situation where real estate companies face financial pressure may continue for a while. However, we believe that the policy relaxation will be adjusted based on market feedback. If there is really a risky event (there is a high probability that small, highly leveraged real estate companies with weak risk resistance will explode first), the policy is expected to be reflected.
Third, from the perspective of real estate companies' risk resistance, even if the policies will not be significantly loosened, through our stress test, most bond issuing real estate companies can reduce operating cash flow outflows by reducing land acquisition and slowing down construction progress, and alleviate the pressure on the capital chain.
The land market will loosen first, and it is a good time for real estate companies with abundant funds to acquire land. sorted out the recent real estate policy changes and saw that the land market showed signs of loosening first, which may be related to the great financial pressure in some regions and the need to activate the land market.Although we believe that the real estate industry will reduce expenditures and reduce land acquisition in the first half of the year under financial pressure, there will be differentiation among enterprises. Real estate companies with sufficient funds may seize the land transaction window period and actively acquire land to increase reserves.
Real estate companies are the king of funds, and they can still use the best configuration. Under the impact of the epidemic, real estate companies will be differentiated due to different risk resistance. At this stage, the financial strength is king. The introduction of relevant policies in various places is beneficial to real estate companies with abundant funds. Pay attention to the financing status of real estate companies. Real estate companies with smooth financing channels may also participate in the land market by increasing financing opportunities; pay attention to the distribution of land reserves, and focus on allocating real estate companies in areas with mild epidemics with high safety.
.2 Other industrial bonds that have been hit hard by the epidemic
.2.1 What industries are most affected by the epidemic?
has a greater impact on the leisure service industry. The leisure service industry represented by tourism, hotels, catering and entertainment has been severely affected by the epidemic. The Spring Festival is not only a traditional festival, but also a peak sales season for related consumption. The impact of the epidemic on these industries is obvious, and it is likely to be difficult to make up for after the recovery in the later stage.
The commercial trade industry will also be greatly impacted. According to the data above the retail and limits, retail sales in the first quarter accounted for about 24% of the whole year, while retail sales during the Spring Festival Golden Week accounted for 10.3% of the first quarter and 2.4% of the whole year. In the retail sector of
, department stores (shopping centers) are greatly affected by the decline in customer flow and the rigid cost. Due to the impact of the epidemic, the department store/shopping center stores have been partially closed, shortened business hours, and merchants have stopped business. In addition, the cost of department stores/shopping centers is relatively rigid and the pressure is relatively large. In addition, optional consumption will also be relatively large, especially offline channels such as gold and jewelry, which are affected by customer flow; however, supermarkets, especially fresh supermarkets, generally have better sales due to people's demand for stocking up fresh vegetables, rice, flour, grain and oil, etc.
transportation industry has also been directly impacted, and the reduction in passenger volume in has had a significant impact on the railway, aviation and logistics industries. As construction starts in various places in the future, it is expected that passenger volume will rebound driven by the rework, but the passenger volume lost during the peak season of the Spring Festival tourism season will definitely be lost.
Agriculture, forestry, animal husbandry and fishery industry will also be affected. prohibits live poultry trading and traffic control will affect the production and sales of products. For example, poultry feeding, single feed source, delayed feed start, and insufficient supply caused by traffic control, and difficult feed transportation, will lead to insufficient supply. At the same time, banning live poultry trading has caused many farmers to be in a dilemma. If this situation continues for a period of time, some farmers with small feed stocks may face a situation of losing all their money. Large breeding companies have strong relative risk resistance, but they will also face huge capital chain pressure. The impact of
on the manufacturing industry depends on the progress of resumption of work. What is more direct about is the shortage of personnel caused by the extension of holidays, postponing resumption of work and the isolation of people from other places, resulting in delays in start-up and slow recovery. In addition, the reduction in downstream demand caused by the epidemic will also be transmitted, and export-oriented enterprises may also face the impact of a decrease in export orders.
.2.2 What is the pressure on private enterprise bond maturity in these industries?
Commercial bonds are under great pressure to mature. Compared with the leisure services, commercial trade, transportation, agriculture, forestry, animal husbandry and fishery, private enterprise bonds in the commercial industry have the greatest pressure to mature in the first half of this year, with a total of about 25 billion yuan. The second is transportation. In the first half of the year, the total amount of private enterprise debt repayment in agriculture, forestry, animal husbandry and fishery and leisure service industries was very small.
.City bonds: Appropriate participation opportunities, credit differentiation
.1Mechanism of the impact of the epidemic on municipal bonds
Mechanism of the impact of the epidemic on municipal bonds We have explained in the "Analysis of the Impact of the Epidemic on Credit Bonds" that the occurrence of the epidemic is dangerous and has opportunities for municipal bonds. The "danger" is first reflected in the epidemic weakening the financial resources of local governments and increasing debt risks in some areas. is the most intuitive thing. The increase in fiscal expenditure brought about by the fight against the epidemic has brought pressure on the fiscal system. Secondly, the reduction in tax revenue caused by the interruption of local enterprises and the relevant tax exemption and tax reduction policies introduced to reduce the burden on enterprises will bring about a decline in fiscal revenue in the short term. Finally, the impact of the regional real estate market will lead to a cooling of the land market and a decrease in land transfer income, which will increase fiscal pressure. The weakening of local government financial resources will affect the external support of urban investment companies and the collection of related projects.
Second, some urban investment companies' own businesses have also suffered a major impact. In addition to weakening financial resources, has also had an impact on urban investment companies' own operations in the short term. For example, in infrastructure business, there will be problems such as new projects being delayed and projects under construction slowed down. There are also some urban investment business segments including tourism, transportation, commerce, real estate and other businesses. The epidemic has a great impact on these industries, and these urban investments may face greater losses.
"machine" lies in the importance of stabilizing infrastructure and the policy of supporting urban investment refinancing may continue. After the end of the epidemic, the macro economy faced a major impact at least in the first quarter due to the epidemic. The market expects that the importance of stabilizing infrastructure will be improved and the intensity of countercyclical adjustments will be further increased. Therefore, the importance of urban investment companies as a policy tool will be further strengthened. Against this background, the policies to prevent and control urban investment debt risks and ensure urban investment refinancing are expected to continue.
.2 What impact does the epidemic have on local financial resources?
.2.1 Direct fiscal expenditure + Fiscal interest subsidies
Direct fiscal expenditure on epidemic prevention is relatively small. As of February 23, finance departments at all levels have allocated a total of 99.5 billion yuan in epidemic prevention and control funds, of which the central government has allocated a total of 25.52 billion yuan. The Ministry of Finance announced on the 24th that as of March 21, finance at all levels had allocated a total of 121.8 billion yuan in epidemic prevention and control funds, of which the central government had allocated 25.75 billion yuan. At present, the domestic epidemic has basically subsided, but the overseas epidemic has not yet reached the turning point. Strictly preventing imported cases from abroad still requires certain expenditures. Assuming that the amount of fiscal expenditure to deal with the epidemic is less than 150 billion yuan, in general, the proportion of direct epidemic prevention fiscal expenditure to the fiscal expenditure budget (about 20 trillion yuan in fiscal expenditure in 2019) is relatively small.
The scale of fiscal interest subsidies is very limited. There is also a kind of financial subsidy that the Ministry of Finance directly pays for, which is financial interest subsidy. The fiscal interest subsidy is based on the People's Bank of China's special re-lending support financial institutions to provide preferential interest rate credit of 300 billion yuan. The central government provides interest subsidy at 50% of the People's Bank of China's re-lending interest rate. The interest subsidy period shall not exceed 1 year. The interest subsidy funds are arranged from the special funds for inclusive financial development, ultimately ensuring that the loan interest rates for key enterprises, including small and micro enterprises, such as small and micro enterprises, are less than 1.6%. According to the specific mechanism of
, according to the document No. 5 of Caijin [2020], the monthly special re-loan issuance rate is 250 basis points for the year-on-year LPR of the previous month. The re-loan term is 1 year. Financial institutions provide credit support for preferential interest rates to related companies, and the loan interest rate cap is 100 basis points for the most recent one-year LPR announced when the loan is issued. The current 1Y LPR is 4.05%, and the corresponding loan ceiling is 3.05%. In December, the weighted average interest rate for newly issued enterprise loans in my country was 5.12%, and the current interest rate cap of 3.05% fell by 207bp from the level in December 2019. Moreover, 3.15% is only the upper limit of the loan interest rate, and the actual loan interest rate can be lower than this level.
Based on the People's Bank of China's special re-lending support to financial institutions to provide preferential interest rate credit support, the central government subsidizes interest at 50% of the actual loan interest rate obtained by the enterprise. For example, for a preferential loan interest rate of 3.05%, the Ministry of Finance subsidies 50%, and the loan interest rate actually paid by the enterprise is 1.525%. According to Liu Guoqiang, Vice Governor of the People's Bank of China, at a press conference of the State Council's Joint Prevention and Control Mechanism on February 27, after the loans issued at that time were subject to fiscal interest subsidies, the average actual financing cost of enterprises was 1.28%. Based on this data, the actual loan interest rate after preferential interest rate credit support is at the level of around 2.56%.
There may still be room for interest rate cut in the future. We assume that the fiscal interest subsidy is around 1.3-1.5%, and the 1-year credit fiscal with a scale of 300 billion will require interest subsidy of less than 5 billion, and the scale is very limited.What is the scale of
.2.2?
tax incentives will be reduced and exempted to help enterprises alleviate their difficulties. First, for some key material production and service industries, the income received is exempted from value-added tax, the refund of incremental value-added tax credits and allow the purchase of equipment to be deducted before tax; second, for enterprises in difficult industries, the maximum carry-over period for 20 years is extended to 8 years; third, on February 25, the State Council determined to further reduce the tax on small-scale taxpayers, and exempt from vacancies of small-scale taxpayers in Hubei Province from March to May, and the collection rate in other regions has been reduced from 3% to 1%. In addition, many cities and cities have also introduced reduction and exemption measures for local taxes such as property tax and urban land use tax based on their own situation. For example, Shandong proposed that enterprises that suffered major losses due to the epidemic and taxpayers have real difficulties in paying can be reduced or exempted from urban land use tax and property tax after approval.
Small and micro enterprises have reduced taxes, with a scale of about 100 billion yuan. We make a simple estimate of the newly announced scale of small-scale taxpayer VAT reductions by the State Council. First, the domestic VAT paid by small-scale taxpayers in 2017 accounted for approximately 9.8% of the total domestic VAT, assuming that this proportion remained unchanged in 2020. Secondly, assuming that the 20-year tax base is consistent with 20-year 20, the VAT amount to be paid by small-scale taxpayers from March to May 2020 is approximately 1590.5 billion yuan (VAT revenue from March to May 2020) * 9.8% = 155.9 billion yuan. Finally, due to the exemption of Hubei Province and the tax rate in other regions has been reduced, Hubei Province's VAT revenue accounted for about 3% of the country in 2017. Assuming that the proportion remains unchanged in 2020, it is estimated that the scale of VAT reduction for this small-scale taxpayer is about 1559*0.03+1559*(1-0.03)/1.5=105.5 billion yuan.
Broadly speaking, social security fees are phased and provident fund can be applied for deferred payment. Again, the State Council meeting on February 18 determined to phase out the reduction and exemption of unit payments for enterprise pension, unemployment and work-related injury insurance and implement the policy of deferring housing provident fund payment to reduce the employment costs of enterprises. Later, the Ministry of Human Resources and Social Security and others jointly formulated the "Notice on Phased Reduction and Exemption of Social Insurance Premiums in Enterprises", which clearly stipulates that within the period, small and medium-sized enterprises will be exempted from social insurance fees, large enterprises will be exempted from levy fees at half the fees, and enterprises with severe difficulties will be delayed. The Medical Insurance Bureau also proposed to phase out the basic medical insurance premiums paid by the unit by half. The Ministry of Housing and Urban-Rural Development proposed that enterprises can apply to defer housing provident fund payment by the end of June 2020.
Social insurance premiums reduce the burden by nearly trillion. At the press conference of the Joint Prevention and Control Mechanism of the State Council on March 3, Fu Jinling, Director of the Social Security Department of the Ministry of Finance, said that after the implementation of the phased reduction of social insurance for enterprises’ pension, unemployment, and work-related injuries, it is estimated that the burden on enterprises can be reduced by more than 510 billion yuan in 2020. At the same time, reducing the payment of medical insurance units for some employees can reduce the burden on enterprises by about 150 billion yuan, which combined for these two items is 660 billion yuan. In addition to the implementation of the policy of reducing the unit payment of corporate pension insurance from 20% to 16% last year, reducing the burden of social insurance premiums alone will reduce the burden on enterprises by more than 1 trillion yuan throughout the year.
.2.3 Land market activity
The epidemic has also affected the enthusiasm of the land market in various places, and land market activity has cooled significantly in the first quarter of this year. Looking back at the SARS period in 2003, land purchase fees and purchase area also showed a significant decline, but the real estate market was in an upward period at that time, so the land market rebounded significantly after the end of the epidemic. This year, we also expect that the land market will rebound after the end of the epidemic, but whether it is the leverage ratio of residents, the leverage ratio of real estate companies, and the financial tightness of real estate companies, they are much higher than in 2003, and the recovery speed will be slower and there will be differentiation between regions. First, the recovery will be slower in areas with severe epidemics, and second, the governance level reflected in various places during the fight against the epidemic will also have an impact.
From the perspective of local dependence on land finance, we use the land transfer income/general public budget income in various places as the measurement indicators. There are relatively large differences between places. The proportion of Beijing, Shanghai, Chongqing, Fujian is very low, and the proportion of land transfer income in Heilongjiang and Liaoning is not high, while Anhui, Sichuan, Henan, Jiangsu and Shandong are relatively high.
.3 How to alleviate the contradiction between income and expenditure
The contradiction between fiscal income and expenditure is highlighted. In 2018 and 2019, my country implemented large-scale tax cuts of 1.3 trillion and more than 2 trillion respectively. Large-scale tax cuts for several consecutive years have led to a significant decline in fiscal revenue. In 2019, the national fiscal revenue increased by 3.8%, a decrease of 2.4 percentage points from 2018, and the growth of local fiscal revenue decreased significantly, with only 3.2% in 2019. The impact of the epidemic at the beginning of 2020 was affected by the epidemic. On the one hand, the finance department should ensure the expenditure on funds for epidemic prevention and control. The impact of the epidemic on the economy has caused short-term sluggish business activities and increased fiscal revenue pressure. On the other hand, the fiscal policy should be more active in stabilizing the economy, and the expenditure pressure is also great, and the contradiction between fiscal revenue and expenditure is prominent.
has the possibility of an upward adjustment in the deficit ratio. Under the huge contradiction between fiscal revenue and expenditure, whether to break through the 3% deficit ratio or even adjust to higher. We believe that funds can be raised by appropriately raising the target deficit ratio and increasing the focus on active fiscal policies. Historical experiences from countries around the world show that when a crisis occurs, many countries break through the 3% constraint. For example, the fiscal deficit rate of the United States in 2009 was as high as 9.8%, Japan's fiscal deficit rate in 2009 also exceeded 10%, and the fiscal deficit rate of the euro zone in 2009 also reached 6%.
If my country's narrow deficit ratio rises from 2.8% to 3.0% in 2020, it can release about 200 billion yuan of funds. In this case, it is difficult to significantly relax the public finance, and other measures are needed to cooperate, such as issuing special government bonds. And if it rises to 3.5%, it can release nearly 700 billion, which can make room for active fiscal policies. The Politburo meeting was held on March 27. The meeting made more active statements on fiscal policy, proposing to appropriately increase the fiscal deficit ratio, issue special treasury bonds, and increase the scale of local government special bonds. We believe that fiscal policy conveys a positive tone and is expected to alleviate fiscal pressure. We will continue to pay attention to the implementation of relevant policies in the future.
How to make up for broad finance? First, special bonds are not subject to deficits and can be expanded significantly. Second, the land market has introduced positive policies to accelerate the promotion of land. Third, my country has a large number of state-owned assets, which can be revitalized and used when necessary.
As for the issue of hidden debt, we believe that the tone of strictly controlling hidden debts of local governments will not change. From the recent attitudes on local hidden debts, on February 16, "Qiushi" published an article saying that "the current local hidden debt risks are generally controllable, but there are still many hidden dangers." We must "adhere to the principle of market-oriented and rule of law... steadily resolve existing hidden debts" and "effectively curb the increase in hidden debts." On February 21, the Politburo meeting made it clear that "fight the tough battle to prevent and resolve major risks, and resolutely defend the bottom line of preventing systemic financial risks." The tone of preventing local debt risks has not changed.
Judging from the actual debt balance, the growth rate of hidden debt has indeed been effectively controlled over the past 18 years. my country's government debt balance has grown year by year, especially the local government debt is at a high risk. In the past 2014, we have made a lot of efforts to strictly control the new hidden debt. It has achieved results in the past two years. We estimate the hidden debt by deducting the existing government debt in the form of non-government bonds. We can see that although the absolute scale has increased year by year, the growth rate has slowed down significantly. The growth rate in 2018 was only about 11%, and the increase in the first half of 2019 was about 6% compared with the beginning of the year, which is a relatively low level. The achievement of
is hard to come by and is a feedback on the strict adherence to the bottom line in recent years. In 2015-16, local debt policies have indeed been relaxed due to the downward pressure on the economy. We have seen that local invisible debt has achieved a very high growth rate in 2016, doubled from the end of 2015. The current economy does have downward pressure, but the scale of debt has increased significantly compared with 2016, and debt risks have risen. In 2018, non-standard debts of urban investment in many places have defaulted on them. If the bottom line is relaxed again, the difficulty of preventing debt risks in the future will increase again.
.4 urban investment is generally favorable, but the differentiation is obvious and
municipal investment bonds are generally favorable. First, the financing environment is improving and the debt transfer ability is enhanced. Since the outbreak of the epidemic, the government has introduced many credit-loose policies to benefit urban investment.The monetary policy level is maintained loose and liquidity is released; the support of financial institutions for epidemic-related enterprises is strengthened, while Urban Investment has undertaken many local hospital construction, medical supplies procurement and other prevention and control work, and financial institutions have supported them. For example, many local platforms have obtained emergency loans from China Development Bank, and many urban investments have issued epidemic prevention and control bonds, and others include special loan support from commercial banks.
Second, most urban investment companies mainly focus on infrastructure business, which is less impacted than other industries, such as leisure and entertainment, commerce, export-oriented manufacturing enterprises. In the future, it may also benefit from the increase in projects under Latin infrastructure.
Finally, there is a high probability that local financial resources can be compensated. The tone of fiscal policy is positive. If the deficit ratio can be significantly improved, or there may be a large number of other supporting policies, including the large-scale issuance of special government bonds and local bonds, it can offset the negative impact of weakening of local financial resources on the platform. We believe that this situation is more likely to occur, so overall policies since the epidemic are beneficial to urban investment.
, but differentiation is becoming increasingly obvious. Financing of low-rating platforms is still difficult. Although the main AA-level urban investment entities in have recovered significantly since late February and many issues in the primary market, they are mainly in the coastal areas of Jiangsu, Zhejiang, Fujian and Hui, followed by central provinces, and few are issued in areas with high debt risks. The issuance period is shorter than that of AA+, and medium- and long-term financing is more difficult. In addition, judging from the issuance of epidemic prevention and control bonds, they are mainly AAA-level and AA+-level entities.
municipal bond performance also differentiated. Observing historical data, we can see that no matter what the rating of the municipal bond is, the yield rate was basically the same direction and similar amplitude change before 2018, and the interest rate difference between grades will not be very large, reflecting the existence of market rigid guarantee expectations. This situation has changed a little 18 years later.
is the first difference in yield trends. After August 2018, the loose credit policy has been clear. The urban investment financing environment has improved significantly compared with 2017. Urban investment bonds of various ratings have declined one after another. However, we found that the downward trend of AA-level urban investment bonds is relatively small, which is significantly widening from AA and AA+ levels, which reflects the market's avoidance of the worst entities.
Secondly, there have been some changes in AA+ and AA grades, which are reflected in the interest rate spread of industrial bond-urban bonds. This interest rate spread can roughly measure the premium of urban investment attributes. The interest rate spread of industrial bond-urban bonds in mid-year 2018 is at a low level. After loose credit, coupled with the frequent wave of defaults in private enterprises, the security attributes of urban investment bonds have emerged. The interest rate spread of AA-level and AA+ grade industrial bond-urban bonds has risen, but the interest rate spread of AA+ grade has risen by a large margin, and the absolute level exceeds the interest rate spread of AA-level industrial bond-urban bonds. The interest rate spread of AA-level and AA+ industries bond-urban bonds has expanded compared with 2017-18, indicating that the market has given a higher attribute premium to urban investments on AA+ platforms, while relatively few are given an AA-level platform attribute premium.
.5Do not blindly sink
How to choose bonds for municipal bonds? municipal bonds have an appropriate opportunity to participate, low ratings and short-term operations, and medium and high ratings can appropriately extend the duration. Be cautious in areas with high debt pressure and poor economic and fiscal strength, and local debt risks may still be exposed. If you want to lower your qualifications, you will never encounter the worst. It is recommended to pay attention to areas such as Anhui, Jiangxi, and Henan.
starts from the platform's own situation, and first, it depends on the urban investment business. The typical urban investment income mainly comes from infrastructure, land consolidation, and public utilities. It has strong public welfare and is closely related to the government. There are also urban investments with other businesses such as trade, guarantees, commercial real estate, etc. The urban investment attributes are not so pure and related businesses will be more affected by the epidemic. For example, some urban investments with larger scenic spots will also be greatly affected by this epidemic. There is another direction worth thinking about. Although the importance of infrastructure has increased, the infrastructure that will be developed in the future will be different from the old infrastructure types in the past. In addition to filling the shortcomings of traditional railways, highways, and rail transit, it is also possible to develop new infrastructure such as 5G communications, education, and medical care. For example, in the list of key construction projects recently announced by various provinces, among the projects announced by Zhejiang, Jiangsu, Jiangxi and other provinces, intercity rail, high-speed rail, new information and communications have become the focus of infrastructure.For urban investment platforms, platforms that have new infrastructure businesses in their business may receive more support from local governments in the future.
The second is to look at the debt structure adjustment. For urban investment, if the financing side is loose, we should seize the opportunity to adjust the debt structure and reduce the cost of debt, rather than uncontrollable financing.
.Leave a point in the bull market to alert
The credit spread is not much room for compression. htmlThe credit bond market has been volatile since March 33, and the credit spread bottomed out and rebounded, but the current spread level is still at a historical low. Looking ahead, we believe that if there is further loosening monetary policy, the yield on credit bonds may continue to follow the downward trend of interest rate bonds, but the current space for interest rate spread compression is still limited. Instead, we should pay attention to whether credit risk will rise as the maturity pressure on credit bonds increases in the second quarter, thereby pushing up the interest rate spread level.
Leave a little alert in the bull market, and credit risks are still being exposed. Credit incidents still occur frequently after the Spring Festival, such as Founder Group’s reorganization, HNA Group’s debt taken over, recent Xiwang default bond settlement, Zhongrong New Big Over-the-Counter Redemption, Ruyi Technology’s ended cooperation with Dagong and debt extension, etc., most of which are the continued exposure of existing risks. After two rounds of private enterprise default waves from 2018 to 19, the existing risks of credit bonds, especially private enterprise bonds, have been greatly released, and most of the entities left behind have undergone "market test", especially the financing test of the market's cautious attitude towards private enterprise bonds.
With the recent continuous credit loose policy, financing has indeed seen improvements in both quantity and structure, but this year there has been more impact from the epidemic. Although the epidemic in my country has ended, the resumption of work and production has not yet returned to the normal level before the epidemic. The spread of overseas epidemic is likely to continue to affect domestic enterprises through industrial chains and trade. The revenue of some enterprises has been greatly impacted. The main entities with high capital chains and high risk of centralized repayment of debts cannot be ruled out that credit risks will occur due to the sharp decline in operating cash flow in the recent period.
credit is still differentiated. It is recommended to pay attention to real estate bond opportunities in investment. Real estate companies have clear logic, pay attention to corporate sales, land reserve distribution and short-term debt pressure. State-owned real estate companies have relatively strong financing strength, while small and medium-sized real estate companies, over-diversified real estate companies and typical high-leverage real estate companies still need to be cautious. It is recommended that municipal bonds still participate. Low ratings and short-term operations are operated. Medium and high ratings can be appropriately extended. If you want to lower your qualifications, you will definitely not encounter the worst. Regionally, it is recommended to pay attention to areas with a debt ratio of Anhui, Jiangxi, Henan and other regions. Other industrial bonds can dig deep into value. In the context of liberalization of registration system and policy-driven expansion of credit bonds, we can pay attention to whether there will be investment opportunities for high-quality and light-asset enterprises.
This article is derived from Jiang Chao's macro bond research
