China Steelmaker Misses 3rd Bond Payment as Defaults Spread

Updated on
  • Dongbei Special Steel failed to pay bond interest due April 12
  • China has had at least seven corporate bond defaults this year

Dongbei Special Steel Group Co. defaulted on bonds a third time since its chairman was found dead by hanging last month, adding to mounting debt nonpayments in China.

The maker of alloy steels used in machinery and car parts failed to fully pay 45.04 million yuan ($6.97 million) of interest due April 12 on its 5.63 percent notes that mature in 2018, it said in a statement on Chinamoney’s website. The firm, based in the northeastern city of Dalian, cited tight cash flow and said it is raising money through various means.

Chinese firms are struggling with surging debt burdens as Premier Li Keqiang seeks to weed out zombie corporations amid the country’s worst economic slowdown in a quarter-century. At least seven firms have missed local note payments this year, already reaching the tally for the whole of 2015.

“Dongbei Special Steel’s default won’t be a one-off incident this year as more and more cases are likely to surface among loss-making and cash-strapped companies, especially in sectors such as steel and coal,” Jiming Zou, a senior analyst at Moody’s Investors Service Inc., said by phone from Shanghai.

Chinacoal Group Shanxi Huayu Energy Co. has said it will fully repay a debt after failing to make a bond payment last week. The coal miner will pay 638.6 million yuan ($98.8 million) in principal, interest and a default fine on the 6.3 percent notes Wednesday, it said in a statement dated April 12 on the Shanghai Clearing House website.

Dongbei Special Steel failed to make an 852 million yuan bond payment on March 28, days after disclosing that its chairman, Yang Hua, was found dead by hanging at his home. It then missed payment on 1.01 billion yuan of separate securities due last week.

China’s steel market has staged a surprise rebound in 2016 after the nation’s leadership signaled it’s prepared to bolster the economy, even as the broader thrust of Chinese policy is to pivot from investment-led to consumer-led growth. Chinese steel mills are now experiencing “the highest level of profitability in 12 months,” analysts led by Felicity Emmett, head of Australian economics at ANZ Banking Group Ltd., said in a note.

“There’s an improvement in recent months which was fueled by investments and inventory shortage and bodes well for steel prices at the moment,” said Moody’s Zou. “But this is mostly seasonal fluctuation as China’s steel market enjoys its peak consumption months in March/April. Debts were accumulated over a long time and won’t be solved by short-term relief in profits.”

— With assistance by Feiwen Rong, and Judy Chen

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