Cash-starved corporations to issue bonds

PUBLISHED : Tuesday, 11 October, 2011, 12:00am
UPDATED : Tuesday, 11 October, 2011, 12:00am

Several cash-starved Chinese state-owned companies have decided to brave a wintry market and issue bonds despite tight liquidity and jittery investors.

In one example, Metallurgical Corporation of China (MCC) has sought permission to issue 10 billion yuan (HK$12.17 billion) worth of one-year bonds despite raising US$5.12 billion from the world's second-largest initial public offering in Shanghai and Hong Kong in 2009.

'Given the company's large funding needs, if it is unable to obtain sufficient funding it may affect the company's day-to-day operations and long-term strategy,' MCC said.

Separately, China Shipbuilding Industry Corporation, one of China's two largest shipbuilders, plans to issue five billion yuan worth of one-year bonds. As of the end of last year, several subsidiaries of the Shanghai-listed firm had 19.9 million yuan in overdue unpaid debts, and China Shipbuilding had made provisions of 1.4 billion yuan for bad accounts receivable. As of March 31, China Shipbuilding's accounts receivable totalled 21.5 billion yuan, 189 per cent higher than the end of 2009.

During the second quarter, China Railway 19 Bureau Group, a subsidiary of China Railway Construction Corporation (CRCC), suffered a net operating cash outflow of 123.5 million yuan, compared to a net operating cash inflow of 968 million yuan in 2010. CRCC, listed in Hong Kong and Shanghai, is one of China's two largest rail construction firms.

'If the company's net operating cash outflow increases, it will hurt its profitability and debt repayment ability,' warned China Railway 19 Bureau, which plans to issue 500 million yuan worth of one-year bonds.

China Railway 19 Bureau's orders on hand plunged from 48.7 billion yuan in 2010 to 22.6 billion yuan in the second half, which was even lower than 2008.

'The company's rail projects maintained rapid growth from 2008 to 2010, but in the first half its new rail contracts were fewer, only 4.2 billion yuan,' said China Railway 19 Bureau.

As a sign of a weak market for railway bonds, the Ministry of Finance yesterday announced that the tax on interest payment from railway bonds would be halved from 2011 to 2013.

Separately, China CNR Corporation, a Shanghai-listed train maker, announced plans to issue 7.1 billion yuan of new shares, less than the 10 billion yuan the state-owned company previously planned, partly due to a weak stock market, the Shanghai Securities News said.

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