Hidili Says Not in Position to Pay Bonds as China Defaults Mount

  • Company has defaulted on some of its 6 billion yuan of loans
  • Coal trader Winsway missed bond payments earlier this year

China faces another test in its credit markets this week after a coal firm signaled it may default on its dollar debt.

Hidili Industry International Development Ltd. is not in a position to repay $190.6 million of principal and interest due Nov. 4. on its 8.625 percent notes, it said in a statement Friday. The mining company based in the southwest province of Sichuan has defaulted on some of its 6 billion yuan ($947 million) of loans, it said. Hidili has hired UBS Group AG to advise on bond restructuring, according to the filing.

Defaults at China’s companies, the world’s biggest corporate borrowers, have spread this year amid the weakest economic growth in a quarter century that’s hurt commodities and manufacturing. Coal trader Winsway Enterprises Holdings Ltd. failed to pay interest on dollar bonds for a second time this year in October. Defaults are also rising onshore, where manufacturing firms accounted for four of the five major bond failures this year.

"Given the poor macro backdrop, we are seeing more distress with companies in overcapacity industries," said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. "Defaults, especially in the private sector, will only become more common.”

Stresses Emerge

Commodities companies make up almost half of the 200 Chinese firms with less cash than short-term debt, net losses and contracting revenue, according to filings through June 30 compiled by Bloomberg from firms listed on the Shanghai and Shenzhen stock exchanges.

Hidili has been “experiencing challenging operating conditions as a result of slowing growth” in China’s economy and persistently low commodities prices globally, according to Friday’s filing.

“We tried selling assets to raise cash but we haven’t been very successful," Cathy Huang, a spokeswoman for Hidili, said by phone. "There’s no plan yet on how or when we can repay the bonds.”

As of June 30, Hidili had cash of just 118 million yuan, insufficient to cover total borrowings of 7.1 billion yuan, according to data compiled by Bloomberg.

Its 8.625 percent securities, which were issued with face value of $400 million in 2010 and have an outstanding amount of $182.8 million, fell 19.5 cents to trade at 39 cents on the dollar as of 11:11 a.m. in Hong Kong, according to Bloomberg-compiled prices.

Hidili will hold a briefing by phone with investors at 4 p.m. Hong Kong time Monday.

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