China Fertilizer Maker to Default on Bonds Amid Debt Woes

  • Inner Mongolia Nailun investors opted for early note repayment
  • Company will push for restructuring to meet bond payments

A Chinese fertilizer maker said it will default on bonds Thursday, becoming at least the eighth company to renege on debt obligations in the nation this year as debt woes spread amid a weakening economy.

QuickTake China’s Debt Bomb

Inner Mongolia Nailun Group Inc. on Wednesday said that it wouldn’t be able to meet demands of investors exercising an option for the early repayment of notes on Thursday, according to a statement to the Shanghai Stock Exchange.

Chinese firms are struggling with record debt repayments as Premier Li Keqiang seeks to wipe out zombie companies amid the weakest economic growth in a quarter-century. Total defaults on local note payments this year already exceed the tally for the whole of 2015, and there are indications the number may increase further. Baoding Tianwei Yingli New Energy Resources Co., which missed a note payment last year, said Thursday it is uncertain if it can repay securities due May 12.

"Because of the economic slump, the Inner Mongolian government’s ability to bail out companies has weakened,” said analysts Huang Wentao and Ji Weijie at China Securities Co. in a report Thursday.

Prices Drop

While Nailun’s May 4 statement didn’t specify how much of the 800 million ($123 million) in debt investors had opted to sell back, it said on April 19 that they’d decided to offload 737 million yuan of the securities. The 7.48 percent notes have a 2018 maturity date, but carry an option for early repayment on May 5 this year.

Nailun, based in China’s northern region of Inner Mongolia, also must pay annual interest on the bonds to all investors on May 5. The firm can’t meet that payment either, it said.

The securities have declined to 30.6 percent of face value from a 2016 high of 97.7 percent on April 19, according to valuations compiled by Chinabond.

The company will push for restructuring to make bond payments, according to the filing.

— With assistance by Judy Chen

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