Meet CMIG, the Chinese Group Dicing With Default

(Bloomberg) -- Another acquisitive Chinese company is wobbling. Less than five years old, China Minsheng Investment Group Corp. has spent more than $4 billion on investments and amassed $34 billion of debt, but recently almost failed to make a bond repayment. CMIG joins the likes of HNA Group Co. and Anbang Insurance Group Co. in struggling to repay debt after embarking on a spending spree. At a time when China’s economy is slowing, the group’s troubles are under particular scrutiny, not least since -- in common with many big Chinese companies -- it has plenty more repayments due this year.

1. What is China Minsheng Investment Group?

One of the largest private investment champions in China, the group was set up by 59 non-state companies and obtained an operating license in 2014. Setting out with 50 billion yuan ($7.4 billion) in capital and a mandate to help Chinese private enterprise expand globally, CMIG has grown into a sprawling conglomerate that’s comparable to Fosun International Ltd., or a smaller version of the embattled HNA. It is unrelated to China Minsheng Banking Corp. though Dong Wenbiao, that company’s former chairman, ran CMIG until his retirement last year. He co-founded CMIG with some of Minsheng Bank’s founders and billed the group as China’s version of JPMorgan.

2. What did it buy?

Its three-year spending splurge included trophy property assets in London and Shanghai as well as health care, finance, aviation and new energy businesses. Among the biggest acquisitions was a $2.2 billion Bermudan insurer which it listed on Nasdaq in November as Sirius International Insurance Group. One of CMIG’s units, CMIG Leasing, leased the plane to Indonesia’s Lion Air that crashed in October killing 189 people. The unit said at the time it was fully covered by insurance. CMIG bought Societe Generale SA’s London headquarters for 84.5 million pounds ($110 million) in 2016. Like HNA and other non-state groups that have run into cash shortages, the company often financed itself with short-term debt. That led to problems as China cracked down on shadow banking and experienced its deepest economic slowdown since 2009.

3. Is it well known outside China?

Some of CMIG’s connections are. Its global advisory board has included figures such as former French Prime Minister Dominique de Villepin and former Italian premier Romano Prodi, according to the company’s website. The firm named Thai food producer Charoen Pokphand Group’s vice chairman Yang Xiaoping as its co-chair this month, according to its official WeChat account. Back in 2014, British Prime Minister David Cameron welcomed CMIG’s plan to invest $1.5 billion in the U.K. and open its European headquarters in London. Sirius International has investor Jim Rogers on its board.

4. How deep are CMIG’s financial troubles?

The Shanghai-based conglomerate owes about $34 billion as of June, one of the biggest debt piles among China’s private companies. What’s more, a majority of its bonds are set to mature this year. It shocked investors by missing a bond payment on Jan. 29, before scraping together enough cash to repay the note on Feb. 14. A CMIG default would arguably be the most serious in China in more than two decades, said Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group, before the company made the payment. The next bond principal payment of 1 billion yuan is due March 24, with two more payments totaling more than 4 billion yuan due in April.

5. What are its options?

It has some valuable assets. On Feb. 13, it sold a 50 percent share in a Shanghai land plot that cost a near record 25 billion yuan in 2014 to Greenland Holdings Corp. It also offloaded Business Aviation Asia Ltd. in January. Some investors including China Oceanwide Holdings Group have pulled out of CMIG in recent years, but it had 63 shareholders as of October and total assets of about 310 billion yuan as of June, according to a filing.

6. What’s the bigger picture?

CMIG’s struggles increase the risk that investors curtail funding to China’s legions of non-state borrowers, which generate more than 60 percent of annual output and 80 percent of employment in the world’s second-largest economy. Of special interest is how Chinese authorities respond to the prospect of a major private-sector default. While policy makers have been trying to avoid the moral hazard associated with government-orchestrated bailouts, they face growing pressure to prop up struggling businesses as the economy slows and China’s trade spat with U.S. President Donald Trump rumbles on. Over the past few months, Chinese leaders have announced a flood of policies to help reduce private sector costs and make financing more available. Meantime, bonds from at least 28 Chinese companies totaling $26.9 billion face repayment pressure, according to company and ratings firm statements compiled by Bloomberg.

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