China Iron Ore Miner Defaults on Bond, Hurt by Economy Slump

Updated on
  • Zibo Hongda failed to make full bond payment due Tuesday
  • Some banks withdrawing loans to Zibo Hongda, Dagong says

A Chinese mining company defaulted on its bonds, the latest firm to have trouble with financing as an economic slump hurts business.

Zibo Hongda Mining Co., which is based in the eastern province of Shandong, said it didn’t raise enough funds to make its full debt payment due March 8, according to a statement posted to the Shanghai Clearing House website. The iron ore miner issued 400 million yuan ($61 million) of notes in 2015 with a coupon rate of 8 percent and had to repay 431.91 million yuan in principal and interest Tuesday.

Chinese mining companies are struggling as President Xi Jinping pushes to reduce pollution and cut industrial overcapacity amid the worst economic slowdown in a quarter century. Some banks have withdrawn loans to Zibo Hongda, increasing the company’s liquidity shortage, according to a statement from Dagong Global Credit Rating Co. on March 1 posted on the Chinamoney website.

“Demand from the company’s customers, mainly steel firms, has been falling as they struggle due to overcapacity,” said Ji Weijie, a bond analyst at China Securities Co. in Beijing. “Industries with overcapacity problems have very high credit risks, especially those companies not backed by the government.”

Cutting Capacity

China will close between 100 million and 150 million metric tons of annual crude steel capacity by 2020, according to an outline published on the website of the State Council on Feb. 4. That’s as much as 13 percent of existing capacity estimated by the China Iron & Steel Association in January at 1.2 billion tons.

At least 10 companies have reneged on bond obligations in the past two years even as the government loosened monetary policy and allowed more companies to sell notes in the onshore market.

Zibo Hongda said it will try to raise money through multiple channels to repay the debt, according to its statement. Two calls to the firm’s main number went unanswered Wednesday.

— With assistance by Ling Zeng, and Judy Chen

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