Industrials

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Zoomlion could use a crane to lift its finances. Things are deteriorating fast for China's biggest construction-machinery manufacturer, which had its worst first half since listing. The board ignored that and decided on June 29 to triple the 2015 dividend.

Investors, especially creditors, can no longer turn a blind eye to the company's problems. 

Zoomlion's dollar bonds due 2022 dropped 3.5 cents on the dollar Thursday, pushing their yield near 8 percent, after the company reported Wednesday a widening loss. The stock fell 1.2 percent. Zoomlion now risks being downgraded by both Fitch and S&P Global Ratings, and more pain can be expected as it deals with a surge in credit to buyers.

Heavy Duty
Creditors are bailing on Zoomlion after it announced an 829 million yuan loss
Source: Bloomberg

The company's receivables were already equivalent to 133 percent of sales last year, making it China's top nonfinancial corporation in terms of credit extended.

The problem continues to compound, as Zoomlion's trade and lease receivables increased 2.6 percent in the six months ended June 30, from an already very high 49.1 billion yuan ($7.4 billion) at Dec. 31, 2015. That item makes up 54 percent of Zoomlion's total assets, compared with the median 19 percent for 138 publicly traded machinery makers worldwide.

All that credit is no longer helping Zoomlion sell. Its inventories rose 1.2 percent in the latest period. Along with sums due from customers, cranes and cement mixers parked in warehouses made up 70 percent of all Zoomlion's assets at June 30. And those assets are increasingly turning out bad.

Not So Current
Receivables are still piling up despite a steady increase in bad loans to customers
Source: Bloomberg

Zoomlion has started accepting that many of these payments will never be made, writing down about half a billion yuan of receivables every year since 2012.

Steady Losses
Since 2012, Zoomlion has been impairing receivables to the tune of half a billion yuan a year
Source: Bloomberg

At some point, however, the company will have to work out how much it really can recover. Perhaps instead of increasing its dividend, Zoomlion should have accelerated the reckoning and used the cash to reduce leverage and operational risks.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net