China Railway Material Bond Halt Dulls Appeal of State-Firm Debt

  • Supplier of steel, cement for railways halted trading Monday
  • Investors adjust models for state-firm debt: China Merchants

The appeal of Chinese state-owned enterprises for debt investors is fading further after a government-backed supplier of steel and cement for railways halted trading on its bonds.

China Railway Materials Co. has suspended trading on its 16.8 billion yuan ($2.6 billion) of outstanding notes as it studies debt repayment issues, it said in a filing Monday. The average yield on five-year corporate notes rated AAA, a common grade for state companies in the nation, rose 4 basis points on Monday in the biggest jump in more than two months.

As Premier Li Keqiang pushes through reforms of overcapacity companies, many bloated state firms have stumbled in the debt market. Baoding Tianwei Group Co., a maker of electrical transformers, last year became the first government-backed company to renege on onshore bonds. Sinosteel Co. postponed a debt payment earlier this year. Coal miner Chinacoal Group Shanxi Huayu Energy Co. failed to make a payment on debentures on time last week.

“More investors are adjusting their models for China’s SOE bonds because it is becoming increasingly clear that the government is not going to salvage everyone,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen.

Two calls to China Railway Materials’ general line went unanswered.

The firm had interest-bearing debt of 34.2 billion yuan and its debt-to-asset ratio was at 87.8 percent as at the end of September 2015, according to its filings. The company has yet to release its 2015 annual results. Its suspended notes include 6.8 billion yuan of public bonds, all of which will come due before August this year, and 10 billion yuan of privately placed securities.

— With assistance by Lianting Tu, and Zheng Wu

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