ADVERTISEMENT

Meet CMIG, the Chinese Group Dicing With Default

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. Now it’s unable to make some bond repayments. 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 economic growth is slowing, the group’s troubles are under particular scrutiny, along with other big Chinese companies with plenty more debt 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 ($7.3 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 ($106 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 in February, 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 owed about $34 billion as of September, 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 (in China, some bond agreements have a repayment grace period before an official default is declared). In April, CMIG said cross-default clauses were triggered on its dollar notes totaling $800 million and on July 19 its offshore unit said it won’t be able to repay the principal as well as the interest on the 3.8% $500 million bond due August. That came despite repeated efforts to stabilize the firm’s financial situation.

5. What are its options?

It has some valuable assets. On Feb. 13, it sold a 50% share in a plot of land in Shanghai 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 2018, according to a filing. The company was addressing its liquidity issue through debt and business restructuring after financial institutions onshore formed a creditors’ committee. CMIG also sought to bring in strategic investment.

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% of annual output and 80% 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. Since late last year, Chinese leaders have announced a flood of policies to help reduce private-sector costs and make financing more available. Meantime, bonds from at least 56 Chinese companies totaling $40.5 billion face repayment pressure, according to company and ratings firm statements compiled by Bloomberg.

The Reference Shelf

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net;Emma Dong in Shanghai at edong10@bloomberg.net;Tongjian Dong in Shanghai at tdong28@bloomberg.net

To contact the editors responsible for this story: Jeanette Rodrigues at jrodrigues26@bloomberg.net, ;Sam Mamudi at smamudi@bloomberg.net, Grant Clark, Leah Harrison Singer

©2019 Bloomberg L.P.

With assistance from Bloomberg