Another China Company Defaults on Bond Payment as Borrowing Costs Jump

Updated on
  • Dandong Port fails to repay part of bond principal Monday
  • Hard for firms to roll over debt due to costs: China Merchants

Another Chinese company has missed a local bond payment, highlighting how weaker firms in the nation are struggling to honor their debts as borrowing costs jump.

Dandong Port Group Co. failed to repay part of notes investors sold back to the issuer Monday, according to a statement on the Chinamoney website that cited the firm’s “big debt burden.” The privately held company is based in Dandong, an industrial city bordering North Korea that has been an area of focus amid United Nations sanctions against Kim Jong Un’s regime.

Zhou Xiaochuan

Photographer: Qilai Shen/Bloomberg

Bond yields in China have surged after central bank governor Zhou Xiaochuan voiced concern about high corporate borrowing on Oct. 15. That sparked a 16 basis point jump in the the average yield on AA- rated corporate securities this month, set for the biggest increase since May, according to Chinabond data. Twenty onshore bonds have defaulted this year, compared with 21 in the same period of 2016, according to Bloomberg-compiled data. 

“The rising borrowing costs have eroded companies’ profits and made it more and more difficult to roll over existing debt,” Xu Hanfei and Li Yuze, analysts at China Merchants Securities Co. said in a report Tuesday, commenting on the default.

Dandong Port sold the 1 billion yuan ($151 million) of five-year bonds in 2014 with an initial coupon rate of 5.86 percent and an option for investors to sell them back to the company early. All the investors have exercised that option, and the company only paid back a portion of the principal, it said without specifying an amount. It paid 58.6 million yuan in interest Monday, according to the statement.

Dandong is the biggest Chinese city along the border with North Korea and the center of the country’s trade with Kim’s regime.

— With assistance by Judy Chen, and Peter Martin

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