Investors Dump Bohai Bonds on 192 Billion Yuan Debt Report

  • Bohai Steel's bonds slumped most since issuance in 2014
  • Steel `industry is facing serious overcapacity problems': S&P

Investors are dumping Bohai Steel Group Co.’s bonds after a local news agency reported the state-owned company is struggling with 192 billion yuan ($29.6 billion) in debt.

The steelmaker’s 1.5 billion yuan 2017 Dim Sum notes have dropped 22 yuan this week to 70 yuan as of Tuesday in the offshore market, the biggest weekly fall since the notes were sold in 2014, according to data compiled by Bloomberg. The northern Chinese city of Tianjin, where Bohai Steel is based, plans to set up a committee of creditors to help the firm “get out of troubles,” according to a Caixin report on March 18. Two calls to the company’s main line went unanswered Wednesday.

Chinese firms are coping with rising debt pressure as Premier Li Keqiang aims to weed out zombies in the corporate sector amid the worst economic slowdown in a quarter century. At least 11 companies have reneged on bond obligations in the past two years even as the government loosened monetary policy. Nanjing Yurun Foods Co., a sausage maker, and Zibo Hongda Mining Co., an iron ore miner, both said they defaulted on notes this month.

“We will see more steel manufacturers’ debt defaults this year,” said Lawrence Lu, an analyst in Hong Kong at Standard & Poor’s. “This industry is facing serious overcapacity problems. The government is trying to help the industry but it will take some time for its measures to take effect.”

Rollover Sought

Bohai Steel has combined debt of 192 billion yuan with 105 creditors including banks, the Caixin report said. The creditor committee is planning to seek a rollover of loans from lenders, Caixin said in a separate report Tuesday, citing people it didn’t identify.

The recent debt restructuring at Bohai Steel and “the lack of a government bail-out of its creditors may signal China’s desire to develop a test case for other loss-making state-owned enterprises and governments to follow,” according to a report from S&P dated Wednesday.

The steelmaker sold the bonds in 2014 with a coupon rate of 6.4 percent, according to Bloomberg-compiled data. It produced 18 million tons of steel in 2014, ranking it the world’s 18th-biggest producer, according to the World Steel Association.

Bohai Steel isn’t the only Chinese company struggling with its debt. Guangxi Non-Ferrous Metals Group Co. is going through bankruptcy and restructuring process, Caixin reported Wednesday. The company has debt of 14.5 billion yuan, the report said. Two calls to its main line went unanswered.

— With assistance by Judy Chen

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