I have recently returned from a trip to China where I was celebrating the “Spring Festival” Chinese New Year with my wife. As you may know, this is the year of the pig.

While in Beijing I met up with an old university friend who works in the asset backed securities department of an investment bank. He alluded to China’s pig problem; ironically in the year of the pig, the transportation of pigs has recently been banned after an outbreak of African swine fever. This has meant that many small pig farmers have been forced out of business which may move the largest pork producing nation towards more industrialised farms.

A company on the Shenzhen Stock Exchange has resorted to a rather strange kind of payment on their bonds. Traditionally, a company who can’t pay its bondholders might issue them more of its stock, the reason being that the issuer can create an unlimited amount. These types of bonds are usually called “payment in kind” or “PIK toggle” securities. Theoretically, there is no reason to limit it to cash and like kind securities. In the year of the Pig, Chuying Agro-Pastoral Group Co. has taken it to another level and have decided to pay its bondholders in ham, this has as a consequence created a new problem for the company as now its running low on pigs. (Leading headlines, “payment in rind” and “PIG toggle”.)

 

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