Chinese City Comes to Rescue of Tool Maker Facing Bond Default

A local government financing vehicle in the eastern Chinese city of Danyang is coming to the rescue of a tool maker that said it can’t meet bond payments this month.

Jiangsu Feida Holdings Group Co. owes interest on 800 million yuan ($129 million) of 2018 notes on Aug. 30, when investors also have an option to sell back the securities. The drill and cutter maker said Aug. 3 it doesn’t have money to repay the interest and may not be able to honor any redemptions. Danyang Investment Group Co., the LGFV, will guarantee any of the securities investors agree to continue holding, it said.

The move signals Chinese authorities’ determination to stem defaults after three onshore nonpayments this year, according to Guotai Junan Securities Co. Local government financing arms, which have been barred from raising money on behalf of regional authorities, are themselves struggling with debt pressure, with 314.34 billion yuan of notes due this year.

“The National Development and Reform Commission is probably giving local governments pressure to avoid default of the bonds,” said Zhang Li, a Beijing-based Guotai Junan bond analyst, referring to the state planner.

Jiangsu Feida sold the 7.6 percent bonds in 2012, according to data compiled by Bloomberg.

The manufacturer has also proposed cutting the notes’ coupon to 6.23 percent until they mature in 2018, according to the statement. The company will hold a bondholder meeting on Aug. 18 to discuss the proposals, the statement said.

Pengyuan Credit Rating Co. cut Jiangsu Feida’s issuer rating to BBB+ from AA June 29, citing a sluggish outlook for the steel industry and a capital shortage at the company.

— With assistance by Judy Chen

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