China sees first default by state-owned firm
Baoding Tianwei Group's failure to repay interest on 1.5 billion yuan bond stokes fears of further defaults by state-backed firms
Concerns over the health of the mainland bond market have ratcheted up a notch after the first debt default by a state-owned company, stoking fears that more firms will line up with bad news for creditors.
Baoding Tianwei Group, a solar equipment maker controlled by China South Industries Group (CSGC), failed to pay interest to its bond holders due yesterday on a 1.5 billion yuan bond issued in 2011. CSGC is one of the 117 state-owned enterprises overseen by the State Council through the State-Owned Assets Supervision and Administration Commission.
Baoding becomes the fourth publicly listed firm to default on bonds since the People’s Bank of China began regulating the corporate bond market in 1997. Shanghai Chaori Solar Energy Science & Technology failed to meet debt obligations in March last year and Cloud Live Technology Group followed early this month.
The debt for all three was issued in the domestic market. Property developer Kaisa Group on Monday announced it had missed an extended deadline for US$52 million in interest payments on offshore notes.
Baoding said in a filing to China’s bond clearing house yesterday that it was unable to repay 85.5 million yuan of interest on time because of “huge losses”. Baoding’s gearing ratio was 87 per cent at the end of last year.
“The default by Baoding Tianwei will have a bigger impact than Cloud Live, as it is backed by the central government. We could see more default cases of state-backed firms in the future, particularly for companies in non-strategic sectors where the default will not lead to systemic risks,” said Wang Ying, Shanghai-based senior director at Fitch Ratings.