SHANGHAI/HONG KONG - When the Shanghai-traded bonds of conglomerate China Minsheng Investment Group plunged 40 percent over two days in January after news it had missed a repayment, Beijing-based hedge fund manager Jash Zhang smelled blood.
Zhang and Liu are among a new flock of vulture investors that have emerged in China’s corporate bond market in the last year, seeking to profit from steep sell-offs. By some estimates, the market in such distressed bonds is worth just 10 billion yuan , a tiny fraction of the $472 billion corporate bond market.
In all, 45 companies in sectors ranging from real estate to industrials and mining defaulted on 117 bonds with a total principal amount of 110.5 billion yuan in 2018, according to ratings agency Fitch. For Liu of Fengshi Asset Management, the game of hunting for “fallen angels” has been highly profitable.
He added that not all technical defaults - such as a delay in payment - would lead to genuine defaults. And some or all of the money can be recovered, he said, making bargain hunting profitable.Distressed asset specialists previously active only in lending markets are now venturing into troubled bonds. Guoho AMC, a bad-loan company in eastern Anhui province, is one example.
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