Record Maturities See More China Firms Missing Debt Payments

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(Bloomberg) -- Chinese companies are facing a surge in distressed events as more companies struggle with debt payments amid record bond maturities.

Chemical producer DunAn Holding Group Co. said the financial office of Zhejiang province held a creditor meeting on May 2 after the company told the local government it has a capital shortage, according to a statement on the Chinamoney website on Monday. Two other companies missed bond payment in the past two weeks, according to filings to the exchanges.

Chinese President Xi Jinping has been bolstering efforts to slash excessive borrowings in the financial system, with traders predicting bond defaults will increase as the nation pushes on with deleveraging. BlackRock Inc. said last week China’s weaker companies face the prospect of even higher borrowing costs in the bond market as defaults spread.

“We expect risk events to increase in China’s credit market this year because the refinancing pressure is rising and profitability is coming down,” Meng Xiangjuan, an analyst at SWS Research Co. in Shanghai, wrote in a note Tuesday. “Investors should avoid lower rated credits and pay more attention to the changes in the operating environment of the issuers.”

At least six publicly issued bonds have defaulted this year, following eight in the same period of last year, according to data compiled by Bloomberg.

Liquidity Crisis

DunAn Holding is raising money for a bond due May 9, according to the statement, adding that debt repayments this year have eroded much of the company’s operating cash flows.

DunAn has asked government officials to intervene with banks to resolve a liquidity crisis, the Financial Times reported, citing a letter from DunAn to the government of Zhejiang province. DunAn Group has $7 billion in outstanding debt, according to the letter, the report said.

Chinese firms must repay a record 266 billion yuan ($42 billion) of bonds rated AA or lower this year, according to Bloomberg-compiled data based on ratings from major local agencies.

Credit risks are also rising in other debt products. A 308 million yuan asset management product issued by the trust unit of State Power Investment Corp. missed an April 20 payment deadline, 21st Century Business Herald reported, citing an unidentified investor of the product.

A call by Bloomberg to State Power Investment’s trust unit went unanswered and the company didn’t immediately reply to an email seeking comment.

Here is list of companies that have run into financial trouble recently.

  • Shanghai-listed China Security & Fire missed 94.4 million yuan principal and interest of a privately-placed bond due April 30 because of liquidity shortage, according to a statement to Shanghai stock exchange
    • The firm’s bond due 2019 dropped 21.3 yuan to a record low of 31 yuan as of 11:15 am in Shanghai, according to exchange data
    • It has a total of 1.6 billion yuan of outstanding bonds, according to Bloomberg data
  • Shenzhen-listed Kaidi Ecological and Environmental Technology Co. failed to pay 698 million yuan in bond principal and interest due May 7, it said in a statement to the Shanghai Clearing House
    • Kaidi has a total 3.437 billion yuan of outstanding bonds, Bloomberg-compiled data show
  • Shenzhen-listed Shandong Longlive Bio-Technology Co. said one of its creditors has filed an application with a court to restructure its debt due to insolvency concerns, according to a stock filing 

©2018 Bloomberg L.P.

With assistance from Judy Chen, Lianting Tu

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