- CICC, Haitong, Guotai Junan flag five companies on liquidity
- Yield premium on five-year AA- corporate notes has jumped
A chemical producer, chicken processor, a sausage maker, a tin smelter and a coal miner have something in common. Surging losses and high leverage have prompted brokerages to put red flags on their debt.
China International Capital Corp., Guotai Junan Securities Co. and Haitong Securities Co. all flagged the five companies’ liquidity risks this month after China Shanshui Cement Group Co. became at least the sixth firm to default in the onshore bond market on Nov. 12. Corporate notes are suffering, with the yield premium for five-year AA- rated debentures over the sovereign widening 19.8 basis points this month, the most this year.
“One of the triggers for a financial crisis in China would be high-profile corporate defaults, which could change a deep-rooted mindset among investors that the government would always stand behind troubled companies,” said Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. “Then a panic would follow.”
Premier Li Keqiang has pledged to weed out zombie companies to help restructure the economy while trying to prevent a hard landing amid the worst slowdown in a quarter century. A Chinese producer of pig iron, Sichuan Shengda Group Ltd. said on Thursday it may not be able to repay bonds next month if investors demand their early redemption. Fertilizer maker Jiangsu Lvling Runfa Chemical Co. is asking its guarantor to repay debt due Dec. 4.
The following is a list of other companies wrestling with high debt and low liquidity, according to CICC, Guotai Junan and Haitong:
1. Xianglu Petrochemicals Co.
Dec. 28. is the day when the company’s 700 million yuan ($109.4 million) 5.8 percent notes come due. The Fujian-based chemical producer says on its website it has the world’s biggest capacity to produce pure terephthalic acid, or PTA. As of Sept. 30, it had cash and cash equivalent of 1.3 billion yuan, only sufficient to cover 18 percent of its short term debt, according to a Nov. 17 CICC report. The company has recorded net losses since 2012, according to its filings on Chinamoney’s website. It attributed its third quarter loss to oversupply of PTA and a prolonged production halt due to an accident. The company has been accelerating collection of account receivables and talking to its banks to avoid a liquidity crunch, according to a Nov. 6 filing. Three calls to Xianglu’s general line went unanswered and the company didn’t immediately reply to an e-mail from Bloomberg seeking comment.
2. Fujian Sunner Development Co.
Jan. 22 is the maturity date for the firm’s 400 million yuan 6 percent notes. The poultry processor, based in the southeastern province of Fujian, had cash and cash equivalents of 439 million yuan at the end of Sept., only sufficient to cover 13 percent of its short-term debt, according to the CICC report. In the third quarter, the Shanghai-listed company recorded a 95 percent plunge in profits from the year-earlier period. Three calls to Fujian Sunner went unanswered Friday. The company hasn’t replied to an e-mail from Bloomberg seeking comment on the bond’s payment.
3. Yunnan Tin Group Holding Co.
Jan. 30 is when the world’s biggest tin smelter has 2 billion yuan of one-year 5.8 percent bonds to repay. The company reported a loss of 1.36 billion yuan in the first three quarters, more than the shortfall of 128.8 million yuan a year earlier, due to sluggish demand for non-ferrous metals. Yunnan Tin had 42.47 billion yuan of liabilities as of June 30 and 53.52 billion yuan of assets. An official in the asset finance department of Yunnan Tin, who would only give her last name Yang, said the company will repay the bonds on time. China Chengxin International Credit Rating Co. lowered the outlook for Yunnan Tin’s AA issuer rating to negative from stable, according to a June 30 statement.
4. Nanjing Yurun Foods Co.
March 17 and May 13 are the two next deadlines for the sausage maker, which averted a default in October. It needs to pay 500 million yuan of one-year 6.45 percent bonds and 1 billion yuan of three-year 5.27 percent notes respectively. Shanghai Brilliance Credit Rating & Investors Service Co. lowered the company’s rating to A from AA on Oct. 14, citing losses and the March house arrest of the company’s controller Zhu Yicai. Nanjing Yurun posted a loss of 524.4 million yuan for the first nine months, compared with a profit of 55.05 million yuan a year earlier. The company had 15.22 billion yuan of assets as of Sept. 30, compared with 9.55 billion yuan of liabilities. Two calls to Nanjing Yurun went unanswered Thursday.
5. Chinacoal Group Shanxi Huayu Energy Co.
April 6 is when the coal miner’s 600 million yuan 6.3 percent notes come due. The company, controlled by state-owned China National Coal Group Corp., owns eight coal mines and employs over 10,000 workers, according to its website. As of Sept. 30, it had cash and cash equivalents of 1.2 billion yuan, enough to cover 22 percent of its short-term debt, the CICC report said. The company reported a loss of 451 million yuan in 2014 and another 421 million yuan in the first nine months of 2015, when the average selling price for its coal dropped 21.6 percent from a year earlier. Three calls to the company’s general line went unanswered and it didn’t reply to an e-mail seeking comment. Debt-to-asset ratios rose in the third quarter at about 80 percent of the the coal companies analyzed in the CICC report.
— With assistance by Lianting Tu, and Judy Chen