Tianwei to Pay Bondholders as Investors Scan China Credit Stress

Baoding Tianwei Baobian Electric Co. said it will make a bond payment in July even as a brokerage raised concern about its finances while investors look for new signs of stress in China’s debt market.

The equipment and solar-cell maker will pay interest due July 11 on its 5.75 percent 2018 notes, it said in a statement to the Shanghai stock exchange. That doesn’t alleviate risks the company, based in the northeast province of Hebei, may struggle to repay other debts, according to Guotai Junan Securities Co., China’s third-biggest brokerage.

“The problem with the company is that it has a huge amount of short-term borrowings,” Yang Kun, a bond analyst in Shanghai at Guotai Junan, said in an interview today after the Tianwei statement. “It’s likely the company may have problems rolling over the debt,” he said, referring to the loans.

The scrutiny of the Tianwei group, which has at least 26.8 billion yuan ($4.3 billion) of notes and loans coming due by the end of 2018 according to Bloomberg-compiled data, follows the first default in China’s onshore bond market last week. Shanghai Chaori Solar Energy Science & Technology Co. failed to make a full coupon payment on March 7, fueling speculation the government may permit more nonpayments as Premier Li Keqiang said yesterday that defaults may be unavoidable in some cases.

‘Absolute Trouble’

Tianwei Baobian’s (600550) capacity to repay its debt is in “absolute trouble,” according to a Guotai Junan report dated yesterday. The manufacturer had 3.88 billion yuan of short-term borrowings as of the end of 2013 including 3.3 billion yuan of bank loans, while its cash and cash equivalents were 1.59 billion yuan, the Guotai Junan report said.

Two calls to Tianwei Baobian today went unanswered.

Trading on its July 2018 bonds were halted by the exchange from March 11 after the company reported a second straight year of losses in 2013. The yield on the notes had surged 537 basis points over the past year to 11.13 percent on March 10, exchange data show. Baoding Tianwei Group, a central-government owned company and Tianwei Baobian Electric’s controlling shareholder, provided a full, unconditional and irreversible guarantee for the notes, according to the notes’ 2011 prospectus.

The manufacturer’s losses widened to 5.23 billion yuan last year from 1.55 billion yuan in 2012, according to a March 10 filing. Its stock has slumped 18.6 percent in Shanghai since March 7, the biggest weekly drop in more than six years.

A gauge of credit risk in China rose yesterday after Premier Li said the government “must enhance monitoring and ensure timely handling to make sure that there are no systemic or regional financial risks.” Credit-default swaps to protect Chinese sovereign bonds from non-payment for five years climbed three basis points yesterday to 98.8 basis points, the highest since Feb. 3, according to prices from data provider CMA.

Seeking Funds

Chaori Solar said earlier this week it would seek buyers for overseas solar farms, as it seeks funds to repay bond investors. An auction will also be held on its 60 percent stake in an alternative energy unit, with bidding starting at 22 million yuan to be accepted through the online shopping website Taobao.com, according to statements from a local court. The auction will be held March 22-23, and will be conducted by Tong Xiang People’s Court of Zhejiang Province, the court said in the statements.

Liu Tielong, vice president of Chaori Solar, declined to comment when asked about the auction by phone today. He said the company would release its own statement, without specifying when.

A meeting of investors in Chaori’s bond is planned for March 26 and the noteholders are considering a lawsuit, offering manager China Securities Co. said on March 10.

To contact Bloomberg News staff for this story: David Yong in Singapore at dyong@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Andrew Monahan, Ken McCallum

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