Asia’s popular junk dollar bond market is in for a shock. The Chinese issuers that dominate are dealing with the consequences of exuberant sales three years ago. Defaults on China’s offshore bonds have more than doubled in the past year.

The latest is Hong Kong-listed oil services company Hilong Holdings, which has defaulted on $165m. There were a number of warnings. Hilong pushed back the exchange deadline for its 2020 bonds four times and Moody’s had already downgraded its credit status further into junk status. The company’s Hong Kong-listed shares are down 72 per cent this year.

Yet it is not altogether surprising that investors were willing to ignore the signs. High-yield offshore bonds have long been an attractive investment for foreign investors. In spite of the pandemic, total issuance of dollar bonds in Asia, excluding Japan, has exceeded a record $140bn so far this year. The bonds are seen to carry implicit guarantees of local governments. Defaults, especially on dollar bonds by Chinese companies, have been rare.