China Conglomerate's Debt Woes Worsen After Bond Default

(Bloomberg) -- Chinese state-linked conglomerate Citic Guoan Group Co. missed a bond payment for the first time as a flurry of asset seizures stymied its liquidity.

The Shanghai Clearing House said it didn’t receive funds for the coupon payment due Sunday on a 3 billion yuan ($446 million) bond from Citic Guoan. The firm said in a filing that the missed payment constitutes a default. The delinquency came after almost all of its stakes in three listed companies were pledged or frozen, China Lianhe Credit Rating said in a report on April 26. A Citic Guoan officer responsible for bond issuance declined to comment.

A worsening liquidity crunch is sweeping through some of the biggest Chinese conglomerates like Citic Guoan, underscoring concerns that the funding pain is far from over despite bouts of stimulus measures. Bonds from at least 44 companies totaling $42.9 billion face repayment pressure, a 23 percent jump from the tally at end-March, data compiled by Bloomberg show.

Citic Guoan Group’s default reflects the company’s aggressive debt-fueled expansion and heightened refinancing difficulties, according to a report by China International Capital Corp. Its diversified pool of shareholders without a controlling owner has also resulted in limited power for state-owned Citic Group to offer support despite its huge debt load, it said.

With at least 15 billion yuan of onshore bonds outstanding, the company, whose businesses range from financial investment to real estate, is being closely watched by investors. It has accumulated total liabilities of 178.3 billion yuan as of Sept. 30, according to its latest financial results.

Citic Group sent a letter to China Banking and Insurance Regulatory Commission to seek assistance to resolve a “liquidity risk” for Citic Guoan, Time Weekly reported earlier this month, citing a document from Citic Group. Citic Guoan missed a first quarter interest on a 2.5 billion yuan financing and Bank of Beijing Co., the guarantor for the debt, has made the payment instead, the lender said in an exchange filing.

Baiyin Nonferrous Group Co., a Shanghai-listed affiliate of Citic Guoan, dropped by the 10 percent daily limit at the close, its third day of declines.

The firm was a wholly-owned subsidiary of Citic Group when it was set up in the 1980s. In 2014, Citic Group’s stake was cut to about 21 percent after Citic Guoan introduced five strategic investors including Tianjin Wanshun Real Estate Co.

©2019 Bloomberg L.P.

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