China Ghost Town Developer to Avert Default as Xi Prevents Risks

  • Ordos City Huayan said it will repay bond principal on Dec. 18
  • Firm has importance to the local government, Guotai Junan says

A Chinese ghost town developer is set to avert bond default following a string of debt failures at other companies, just days after President Xi Jinping vowed to prevent systemic financial risks.

Ordos City Huayan Investment Group Co., based in the northern region of Inner Mongolia, will repay bonds that investors chose to sell back Thursday on Dec. 18, it said in a statement on the Shanghai Stock Exchange’s website. The company had planned to make the payment Thursday and the delay is due to technical issues with a funds transfer, the company said without elaborating.

“Ordos Huayan is a special case because of its importance to the local government,” said Zhang Li, a bond analyst at Guotai Junan Securities Co. in Beijing. The company’s delay doesn’t constitute nonpayment as it’s due to technical reasons, Zhang said. “Its aversion of default doesn’t mean other companies can also avert default.”

The announcement comes a day after Sinosteel Co., a state-owned steel trader, postponed a bond payment a third time. Earlier this month, pig iron producer Sichuan Shengda Group Ltd. became at least the seventh Chinese firm to renege on local debt obligations this year. The Communist Party’s Politburo vowed on Dec. 14 to prevent systemic financial risks in 2016, according to a statement on the State Council’s website after a meeting chaired by President Xi.

Interest Payment

Ji Weijie, a bond analyst at China Securities Co., said Ordos Huayan may have got funds from banks or the local government to repay the bonds. The notes are guaranteed by a local government financing vehicle.

A call to the company’s main line went unanswered Thursday.

Ordos City Huayan sold 1.2 billion yuan ($185 million) of 2018 bonds with a coupon rate of 7.88 percent in December 2012. It will repay the interest on Dec. 17, according to the statement.

The company had said last week that there was uncertainty in repayment after bondholders opted for the early redemption of 1.14 billion yuan of notes on Dec. 17. It also had said it may not be able to repay the 94.56 million yuan of interest due the same day.

Firms in China scrapped or delayed at least 12.7 billion yuan of bond sales this month as more companies flagged default risks, after some 60 billion yuan of canceled offerings in November, according to a Dec. 15 report from Hua Chuang Securities Co.

— With assistance by Judy Chen

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