China Coal Miner Faces Bond Date After Flagging Bailout in 2015

  • Longmay's 800 million yuan bonds will come due March 20
  • China Merchants Securities said local government may help

A Chinese coal miner that said it would get a bailout from local authorities last year faces another bond payment, putting a spotlight on whether officials will step in to help dodge default as they seek to avoid mass job cuts amid reforms of government-owned enterprises.

Heilongjiang Longmay Mining Holding Group, the state-owned firm that said in November it would get a 3.8 billion yuan ($584.7 million) bailout from the local government to use toward bond payments in December, must pay 800 million yuan of 7 percent one-year securities due March 20, data compiled by Bloomberg show. The biggest coking coal company in northeast China paid 5 billion yuan of bonds due Dec. 5 and 800 million yuan of notes maturing Dec. 15 after saying in November it would use funds from the Heilongjiang provincial government toward the payments.

Premier Li Keqiang is trying to cut industrial overcapacity without mass layoffs or derailing economic growth. The Heilongjiang provincial government said on March 12 that Longmay is facing severe losses and has delayed salary payments to workers. In a sign of the balancing act authorities face, Heilongjiang’s governor Lu Hao said at a briefing on March 6 in Beijing that if Longmay completely stops production due to a cash crunch, the provincial government wouldn’t have enough financial power to rescue it.

Bailout Eyed

“The government has been helping Longmay all these years, otherwise it would have defaulted a long time ago,” said Sun Binbin, a bond analyst at China Merchants Securities Co. in Shanghai. “There is high probability that Longmay will make the payment by the deadline.”

As the bond’s due date falls on a Sunday, the actual deadline is the following business day March 21, according to a company statement.

Li Xiang, an official at Longmay’s finance department, declined to comment. Two calls to the Heilongjiang government’s press office went unanswered.

The local government may coordinate related parties to help the firm, according to Sun at China Merchants Securities. “But there are still uncertainties about whether financial institutions are willing to lend out money to Longmay at this time given its weak financial strength,” Sun said.

The yield on the bond, issued last year, has increased 10 basis points this month to 6.57 percent, according to data compiled by Bloomberg.

Ji Weijie, a bond analyst at China Securities Co., said the possibility of Longmay repayment is high because it would be easier for the government to help since the amount is small compared with previous notes.

Longmay flagged its importance to the local economy in a statement on the bailout in November.

“As Heilongjiang province’s signature state-owned coal company, our company’s reform and development affect the lives of more than 200,000 workers and their families, as well as the interests of many companies and financial institutions in the province,” Longmay said at the time.

— With assistance by Judy Chen, Yuling Yang, Shuqin Ding, and Ling Zeng

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