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China’s $417bn National Council for Social Security Fund has recently advised its asset managers to sell-off bonds that were issued by riskier developers and LGFVs such as the ones in Tianjin, as per SCMP. The move stemmed from concerns over their exposure to riskier LGFVs and developers after Sino-Ocean’s bonds, which the pension fund holds a sizeable position in, plunged last week following news that a shareholder-led working group engaged a financial adviser to conduct due diligence and that it is working with major shareholders on a plan to resolve debt risks. This highlights the challenging financial climate Chinese authorities are faced with, as it has to reduce credit market risks while maintaining financial system stability. While offloading these bonds could help mitigate risks in its investments, it could also sow some seeds of doubt over the health of LGFVs and developers, which would offset any efforts made by Beijing to restore confidence in the Chinese economy.
Sino-Ocean’s dollar bonds are trading at deeply distressed levels and have roughly lost half their value since the start of the month. In particular, its 2.7% 2025s fell 52% and are currently trading at 15.5 cents on the dollar.
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