Chinese Coal Miner’s Rising Financing Costs Flag Debt Concerns

Hidili Industry International Development Ltd., a Chinese coal miner, reported rising debt-servicing costs yesterday, flagging concerns about borrowing levels in the nation as it clamps down on smokestack industries. Bond risk in Asia climbed.

Financing costs at Hidili, whose $400 million of 2015 bonds fell to as low as 55.5 cents on the dollar this month, jumped to 261.3 million yuan ($42.7 million) in the first half, according to a filing yesterday. The miner, which Standard Chartered Plc last month identified as one of the 10 weakest dollar-bond issuers in Asia, lost 269.2 million yuan in the period.

Non-payment concerns have mounted, with a gauge of credit-default swap contracts in Asia rising toward its highest close in two months, as China grapples with the longest streak of sub-8 percent growth in at least two decades. Chinese companies and local governments have piled on debt since 2008, when the government announced a 4 trillion yuan stimulus plan to cushion the economy from the global financial crisis.

“There are going to be problems associated with the huge increase in indebtedness that took place in 2009 and 2010,” said Tim Condon, the head of Asia research at ING Groep NV in Singapore. “It wouldn’t be reasonable to think that all of those loans are money good.”

Industry Controls

China will “strictly” control expansion of industries with overcapacity and those that consume a lot of energy or are highly polluting, according to a notice posted on the National Development and Reform Commission’s website yesterday.

Yields on dollar notes from Chinese issuers have risen 134 basis points this year to 6.44 percent, JPMorgan Chase & Co. indexes show.

Hidili had about 5.87 billion yuan of debt as of June 30, of which about 4.64 billion yuan is due within a year, the filings show. The company is paying between 5.4 percent and 12.1 percent for 2.1 billion yuan of loans. The miner’s dollar bonds pay an 8.625 percent coupon, data compiled by Bloomberg show. The notes yielded 36.8 percent as of yesterday.

The company plans to improve its financial position “by implementing a number of measures, including but not limited to raising further medium- to long-term banking facilities and rolling over short-term banking facilities to medium term when they fall due,” Hidili said in the exchange statement.

Bond Risk

“Meeting interest payments is a challenge,” BNP Paribas SA wrote in an equities research report dated yesterday. “Hidili’s balance sheet remains distressed, in our view.”

An investor relations official wasn’t immediately available to comment when called at the company’s Chengdu offices today. Hidili’s IR department didn’t immediately respond to e-mailed questions about its debt situation.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 2 basis points to 169 basis points as of 4:18 p.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge, which advanced 9.7 basis points yesterday, is set for its highest close since June 24, according to data provider CMA.

The Markit iTraxx Australia index increased 7 basis points to 129 as of 10:14 a.m. in Sydney, according to National Australia Bank Ltd. prices. The benchmark is poised for its biggest one-day gain since June 24 and its highest close since July 12, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Japan index climbed 2 basis points to 99 basis points as of 5:18 p.m. in Tokyo, according to Citigroup Inc. prices. The measure, which has ranged from 90.9 to 110.2 this quarter, is on course for its highest level since Aug. 22, according to CMA.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. An increase signals deteriorating perceptions of creditworthiness, while a drop suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

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