Chaori Solar Says Bonds May Be Delisted as Baoding Slumps

The Chaori Solar Website
The Shanghai Chaori Solar Energy Science & Technology Co. website is displayed on an Apple Inc. iPhone 5s. Chaori Solar’s default last week is stoking speculation more companies may miss debt payments after the government pledged to let markets take a “decisive” role in the economy. Photographer: Brent Lewin/Bloomberg

Shanghai Chaori Solar Energy Science & Technology Co., the first company to default in China’s onshore bond market, said its notes may be delisted as a second solar-equipment maker had its securities halted.

Chaori Solar said in a filing to the Shenzhen stock exchange yesterday it’s heading toward its third consecutive year of net losses. It plans to announce its final 2013 earnings on April 28. Baoding Tianwei Baobian Electric Co.’s stock tumbled in trade today while its notes remain suspended after it said on March 10 it expects to report losses for a second year.

Chaori Solar’s default last week is stoking speculation more companies in overcapacity industries may miss debt payments in China’s $4.2 trillion bond market after the government pledged to let markets take a “decisive” role in the economy. Haitong Securities Co., the nation’s second-biggest brokerage, listed Tianwei Baobian and Sinovel Wind Group Co.’s bonds among onshore notes with the highest credit risk last week.

“The default has caused a disruption to the entire Chinese bond market, combined with weak exports and disinflation data,” Charles Macgregor, Lucror Analytics Pte.’s Singapore-based head of Asia said by e-mail today. “It should hopefully serve to highlight the credit risk inherent in similar bonds.”

Mounting Losses

China Securities Regulatory Commission’s statistics unit has asked brokerages to report holdings of corporate debt rated below AA, local media organization Caixin said on its website yesterday. Ratings below AA- on domestic debt are equivalent to non-investment grades globally, according to Haitong.

Chaori Solar said on Feb. 27 it expects to incur a net loss of 1.33 billion yuan ($216.6 million) for the year ending Dec. 31. Tianwei Baobian Electric, which also makes solar-cell parts, said in a statement to the Shanghai stock exchange on March 10 that losses widened to 5.23 billion yuan in 2013 from 1.55 billion yuan a year earlier.

Chaori Solar’s 1 billion yuan of March 2017 bonds have been halted from trading on the exchange since July, preceding its default on March 7 when it failed to make a full coupon payment of 89.8 million yuan. A bondholders’ meeting is planned for March 26 and investors are considering a lawsuit.

Liu Tielong, vice president of Chaori Solar, declined to comment on the potential delisting of the company’s bonds today. He also said the company didn’t have any timetable yet on when it might be able to pay the interest.

’Just Illiquid’

“The company doesn’t appear to be insolvent, just illiquid,” Nicholas Borst, a research associate and the China program manager at Washington-based Peterson Institute for International Economics Inc., wrote in a report yesterday. Allowing the default will mean investors should make “more careful purchases,” as well as “slowing the rate of new bond issuances and leading to a greater differentiation of the yield curve.”

The solar-cell maker’s default came after China Credit Trust Co. was bailed out in January on a 3 billion yuan trust product tied to a failed coal miner. A similar product created by Jilin Province Trust Co. has missed five payments and the sixth, and last, was due yesterday. The trust company, via its public relations firm, declined to comment when asked about the sixth payment yesterday.

Guaranteed Notes

Shares in Tianwei Baobian Electric fell 5.1 percent to 4.29 yuan in Shanghai today. The yield on its 1.6 billion yuan of 5.75 percent notes due 2018 has soared 537 basis points over the past year to 11.13 percent on March 10, exchange data show.

The Shanghai stock exchange, in line with its rules, will decide in seven trading days whether to continue the trading halt on Tianwei Baobian Electric’s bonds until its losses are reversed, according to the March 10 announcement.

The 2018 securities however are guaranteed by Tianwei Baobian Electric’s controlling shareholder, Baoding Tianwei Group, which is a central-government owned company.

Bonds with a guarantee have smaller risks than non-guaranteed securities because a guarantor is required to provide capital to repay the debt if the issuer isn’t able to meet its obligations, according to Guotai Junan Securities Co., the nation’s third-biggest brokerage.

Sinovel Wind

Sinovel Wind’s two bonds due in 2016, which have a combined face value of 2.8 billion yuan, aren’t guaranteed, according to Haitong. Sinovel Wind had its notes placed on a credit watchlist by China Lianhe Credit Rating Co. last month. The 2.6 billion yuan of 6 percent debentures, sold to investors at par in December 2011, were trading at 84.52 percent of face value today, exchange prices show.

Other companies with bonds that lack guarantees and have higher credit risks similar to Chaori Solar include Zhuhai Zhongfu Enterprise Co., Star Lake Bioscience Co. and Nanning Sugar Industry Co., according to Haitong.

Calls to Zhuhai Zhongfu, Star Lake and Nanning Sugar’s offices in China weren’t answered. Calls to Bao Zhen, Sinovel Wind’s Beijing-based media manager, and Zhang Jicheng, the Baoding-based board secretary of Tianwei Baobian, also went unanswered.

Tianwei Baobian Electric’s suspension raises concern about China’s credit markets, National Australia Bank Ltd. said in a research note today. Further default news wouldn’t be surprising, considering about 200 billion yuan of trust products mature this year, Lucror’s Macgregor said.

— With assistance by Ludi Wang, and David Yong

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