China Firms Face Bond Deadlines as Bloomberg Model Flags Risks

  • Model tracks metrics including share performance, liabilities
  • China Securities says defaults in 2016 will more than double

The following is a list of five firms among more than 400 Chinese listed companies that face bond payment deadlines in the next year, for which the Bloomberg Default Risk model calculates a default probability in that time of greater than five percent.

The model tracks metrics including share performance, liabilities and cash flow. It doesn’t directly take into account any assumptions about possible government support and policy changes. The upcoming deadlines are only for bonds issued by the listed companies themselves and don’t include notes issued by firms’ parents or subsidiaries.

“The number of bond defaults this year may be more than twice of that in 2015,” said Ji Weijie, a bond analyst in Beijing at China Securities Co. “But the government will try its best to prevent any systemic risks. It may still bail out those too-big-to-fail state-owned companies or LGFVs, given their importance to regional economies or employment.”

Chinese firms are struggling with record debt payments this year as Premier Li Keqiang seeks to wipe out zombie corporations amid the country’s slowest economic growth in a quarter-century. At least nine firms have missed local note payments this year, already exceeding the tally for the whole of 2015.

1. SDIC Xinji Energy Co.

The state-owned coal producer must repay 1 billion yuan ($153.4 million) of 4.8 percent one-year notes on May 15. The yield has risen about 152 basis points this year to 6.14 percent, according to Chinabond valuations.

SDIC Xinji had 839 million yuan of cash and equivalents as of March 31, versus 6.1 billion yuan of short-term debt, according to Bloomberg data. China International Capital Corp. highlighted it as one of the riskiest onshore issuers in the second quarter, whose cash and short-term debt figures indicate tight liquidity. Dagong Global Credit Rating Co. on May 9 downgraded its rating to AA- from AA+, according to a statement on Chinamoney website.

Fei Dai, SDIC’s board secretary, said on May 3 in response to Bloomberg request for comment that the firm will arrange bank loans and other measures to avoid a default. Two calls to Dai Thursday went unanswered.

Bloomberg Default Risk model calculates a one-year default probability for the company of 7.73 percent.

2. Xining Special Steel Co.

Investors have an option on June 15 to sell 1 billion yuan of 5.75 percent notes due 2019 to the state-owned maker of products used in the rail, automobile and energy industries. The yield on the securities has climbed 167 basis points this year to 8.816 percent, according to exchange data.

China Lianhe Credit Rating Co. said it will keep the company on credit watch list, according to a statement on April 30. The steelmaker had 2.4 billion yuan of cash and equivalents as of March 31, versus 11.9 billion yuan of short-term debt, according to Bloomberg data.

The firm said in e-mailed comments on April 22 in response to Bloomberg questions that it has been seeking to sell private-placement bonds and looking for support from local governments and financial institutions in the province for the debt repayment in June. It said the parent, Xining Special Steel Group, provides a guarantee for the company’s bonds and will fulfill its responsibility, without specifying which securities.

Two calls to Yang Kai, Xining Special Steel’s board secretary, went unanswered Thursday. There was no immediate response to an e-mail seeking updated comment on the debt issue.

Bloomberg Default Risk model calculates a one-year default probability for the company of 6.45 percent.

3. Wuhan East Lake High Technology Group Co.

The developer of technology industrial zones in the central city of Wuhan, must repay a 300 million yuan 4.17 percent one-year note on Aug. 21. The yield on the notes has increased seven basis points this year to 3.835 percent, according to Chinabond valuations.

The local government financing vehicle has 2 billion yuan of cash and equivalents as of March 31, compared with 4.9 billion yuan of short-term borrowings, according to Bloomberg data.

Wuhan East Lake said in e-mailed comments on May 11 that it is in good shape and has the ability to repay all interest-bearing borrowings, including bonds, on time. The company said it has abundant liquidity, with total credit line of 9.532 billion yuan, 4.799 billion yuan of which is unused.

The firm also said some bonds and interest-bearing debt are guaranteed by its controlling shareholder United Investment Group, who will continue to offer support. The 2016 bond is not guaranteed by any entity, according to the prospectus.

Bloomberg Default Risk model calculates a one-year default probability for the company of 6.79 percent.

4. Beijing Capital Development Co.

The state-owned property developer must pay a 2 billion yuan 5.78 percent note on Dec. 30 that it sold in a private placement in 2011. The yield on the securities has increased 5.5 basis points this year to 3.16 percent, according to Chinabond valuations.

The company had 19.5 billion yuan of cash and equivalents as of March 31, versus 22.7 billion yuan of short-term debt, according to Bloomberg data. Wang Yi, board secretary, wouldn’t immediately comment over phone on May 9. There was no immediate reply to e-mailed questions on the company’s debt repayment plans.

Bloomberg Default Risk model calculates a one-year default probability for the company of 5.23 percent.

5. Yingli Green Energy Holding Co.

The solar maker must repay a 300 million yuan 6.01 percent five-year bond on May 3, 2017. The yield on the notes has risen 122 basis points this year to 14.33 percent, according to valuations compiled by Chinabond. Once the world’s biggest solar manufacturer, the firm said on April 29 that there “is a substantial doubt as to its ability to continue as a going concern.”

Baoding Tianwei Yingli New Energy Resources Co., Yingli’s venture in China, missed a 1.486 billion yuan payment in principal and interest for five-year bonds due Thursday, according to a statement on Chinamoney. Baoding Tianwei Yingli also failed to make the remaining payment for separate five-year bonds it defaulted on in October, according to a separate statement. Noteholders had demanded the issuer to make the payment from April 30 to May 12, the statement said.

An official at the investor relations office of Yingli, who wouldn’t give his name, declined to comment over the phone and said the company will address debt repayment plans in the annual financial report released Friday or next week.

Bloomberg Default Risk model calculates a one-year default probability for the company of 6.74 percent.

— With assistance by Ling Zeng, and Judy Chen

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