China woes claim Japan shipping victim as credit risk default surges

TOKYO (BLOOMBERG) - The Chinese economic slowdown that's caused a rout in mining giant Glencore's stock price claimed a victim in Japan's shipping industry, sparking a jump in the default risk for other competitors and trading companies reliant on the commodities and energy business.

Daiichi Chuo KK filed for bankruptcy protection in Tokyo on Tuesday with 120 billion yen (S$1.42 billion) in liabilities, in the biggest failure by a publicly-traded Japanese company this year.

The cost to insure shipper Mitsui OSK Lines Ltd.'s debt against nonpayment surged 43 basis points last month and touched 156, the highest since October 2013, while trading house Mitsui & Co.'s credit-default swaps climbed to the most since August 2012.

China is Japan's biggest trading partner and its deceleration is rippling through Prime Minister Shinzo Abe's economy, which probably slipped back into recession after unexpectedly weak industrial production in August, according to a report by JPMorgan Chase & Co. on Wednesday.

Daiichi Chuo filed for bankruptcy protection this week after four consecutive years of losses amid plunging freight rates and too many ships built to supply commodities to Asia's biggest economy.

"If you look at the big picture, China's weakness is the reason why Daiichi Chuo is heading for default," said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. "The market has lost confidence and it's now testing names where it can see the possibility of a Glencore-like sell-off."

Glencore lost almost a third of its value on Monday amid concern over the commodity trader's debt and waning raw materials demand. The stock rallied 33 per cent in the two days ended Wednesday, paring the plunge in the commodity trader's shares to 69 per cent this year after it said it has "good liquidity and absolutely no solvency issues."

A Bloomberg index of commodity futures has fallen 50 per cent since a 2011 high. Data on Monday showed Chinese industrial profits dropping the most in at least four years, while gauges of shares listed in Hong Kong and Shanghai were among the world's worst performers in the third quarter as a stock boom turned to bust and data signaled a sharper slowdown for the nation's economy.

The debt risk of other Japanese shippers and traders are also rising. Kawasaki Kisen Kaisha Ltd.'s CDS reached 138 basis points, the highest since October last year, while Nippon Yusen KK's swaps touched 80 basis points on Sept. 29, a level unseen since November 2013. The default risk of Marubeni Corp., a Tokyo-based trading company, surged to 132.5 on Wednesday, the highest since January 2013.