Photographer: Maurice Tsai/Bloomberg

Sinosteel to Default on Bonds After Government Said to Help

  • Sinosteel said it will delay interest payment due Tuesday
  • Company has also postponed bond option date by one month

A Chinese state-owned steel trader is set to default on a bond payment even after the government was said to have stepped in to help, highlighting worsening corporate finances as an economic slowdown deepens.

QuickTake China’s Debt Bomb

Sinosteel Co. will delay an interest payment due Tuesday on 2 billion yuan ($315 million) of 5.3 percent notes maturing in 2017, according to a statement on Chinabond’s website Monday. The firm is doing so as it plans to back the bonds with stock of unit Sinosteel Engineering & Technology Co., and that may affect issues related to interest payment, it said without elaborating. The failure to pay interest on time constitutes a default, said Industrial Securities Co., Haitong Securities Co. and China Merchants Securities Co.

More Chinese firms are struggling to repay obligations after the yuan’s fall, a stock rout and speculation that the bond market is overheating. Government-backed companies aren’t immune, and defaults this year had already included two state-owned enterprises, according to China International Capital Corp. The weakest economic growth in a quarter century has also taken a toll on commodities companies, with coking-coal importer Winsway Enterprises Holdings Ltd. defaulting on dollar notes earlier this year.

"Investors should avoid lower-rated steel and coal companies,” analysts at Huachuang Securities Co. led by Tang Yawen said in a report Monday. “With the economy slowing, some companies are likely to run into repayment issues."

Option Postponed

Two calls Tuesday to Beijing-based Sinosteel went unanswered.

The company said Friday that it had postponed a date at which investors can demand early repayment on its 2017 securities. Investors can’t sell back the debentures until Nov. 20, after an original option date of Oct. 20, it said.

That came after the National Development and Reform Commission planned to meet noteholders and ask them not to exercise the redemption option on Oct. 20, people familiar with the matter said last week. Parent Sinosteel Corp. had also sent a letter to noteholders pleading with them to not sell the bonds back as Sinosteel would be unable to repay, the people said.

“Investors have fully expected Sinosteel’s default,” said Sun Binbin, a bond analyst at China Merchants Securities. “It’s possible it will pay the interest later, which would be better than the market expectation.”

Credit risks in China’s bond market are gradually being exposed to investors, said analysts led by Tang Yue at Industrial Securities in a report Tuesday.

Sinosteel Corp. and its units had more than 100 billion yuan of debt as of December last year, media company Caixin reported in May, citing data collected by a debt commission led by Bank of China. Sinosteel Co. is yet to release its 2014 financial report.

— With assistance by Judy Chen

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