In case you hasn’t seen or heard yet, the Internet is “on fire” with the latest concern coming out of China, that a tiny little solar company is on the verge of default.
Chaori Solar Energy out of Shanghai, ( a maker of solar cells ) said March 4 it may not be able to make an 89.8 million yuan ($14.7 million) interest payment in full by the deadline tomorrow.
Now, while this may not “immediately appear to be that big a deal ( as we’ve all seen companies default / go belly up before ) the implications are that “if indeed” Chaori defaults on its corporate bond interest payments on Friday it will be the first “ever” corporate bond default allowed in China.
Where normally bailouts are quietly made and companies / investors are “bailed out” by the PBOC (Peoples Bank Of China) and the government, it appears that in this case China is looking to set a “new example” in simply allowing the company to default – as a simple matter of market mechanics and ever day market volatility.
The message clearly being “we are not going to be there to bail out every single company that goes off the rails” and that the “permanent backstop/endless liquidity injections” investors in China have come to enjoy ( and even come to rely on ) will “not” be there moving forward.
A bold move, with far-reaching implications.
How many other companies in China are on the brink of default? How many corporate bond holders might just look to “get the hell out of the road” now knowing the government isn’t going to be there to step in and help?
Bank of America Corp. is calling it “China’s Bear Sterns Moment”.
Do you think the sudden “blast higher” in AUD might just be indication that the big boys are front running this a bit? Providing even “higher levels” to get short from?
So we’ll see. So we’ll see.