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Fluttering flags at the Tiananmen Square and atop the Great Hall of the People in Beijing on March 5, 2019. Photo: Xinhua

Exclusive | Shanghai’s bourse asks banks, bondholders to cut debtors some slack to ensure financial stability through China’s 70th birthday

  • In an August 5 meeting with creditors and bondholders, the Shanghai Stock Exchange (SSE) asked lenders to give Hawtai Motor Group until after October 1 to repay up to 1 billion yuan in owed payment

Shanghai’s stock market operator is stepping into the workout plans of corporate debtors on its bourse, aiming to calm nerves and buy more time for borrowers while the capital markets had been roiled by a deteriorating trade war and a slowing economy.

During an August 5 meeting, the Shanghai Stock Exchange (SSE) asked holders of Hawtai Motor Group’s 5 billion yuan (US$284 million), five year puttable bond issued in 2016 to extend a put deadline to after China’s National Day celebrations on October 1.

The plea was made “on behalf of the national government to ensure financial stability ahead of the 70th anniversary of the founding of the People’s Republic of China,” according to minutes of the meeting, issued by Hawtai to creditors seen by South China Morning Post. Three SSE officials confirmed that the minutes reflected the proceedings, declining to give their names.

The intervention by the exchange underscores the Chinese government’s sensitivity to financial turbulence, particularly when the worst economic growth pace on record is raining on the Communist Party’s commemoration of seven decades in power. Authorities have reason to worry, as China’s corporate bond defaults rose to a four-month high in July, with 14 notes missing at least 14.4 billion yuan in payments.

The pain is particularly acute for borrowers in the private sector, as they often have to go without the kind of financial backing that state-owned enterprises enjoy. At a time when funding is scarce, and financial institutions are increasingly becoming risk-averse, private-sector borrowers are especially vulnerable, said the Nanjing University’s finance professor Sun Wujin.

“Competition is very fierce for safe assets, which means that the bigger state enterprises backed by the government” get most of the financial resources, Sun said. “After all, it is more difficult for the big state firms to escape from liabilities.”

Hawtai is a two-decade old company that assembles passenger cars and sports-utility vehicles (SUV) in Inner Mongolia, Tianjin, Liaoning and its hometown of Rongcheng in Shandong province. The company made an aborted 150 million (US$168 million) bid in 2011 to buy Saab from Spyker Cars. It now makes a Hawtai-badged SUV based on Hyundai Motors’ first-generation Santa Fe, and another based on the Terracan midsize SUV.

The carmaker said it sold 102,300 vehicles last year, according to its filing to the auto industry association. However, vehicle registration and customs records show that it sold only 21,300 cars that year, including 2,950 in China, exporting the remainder, Chinese financial media Caixin reported.

By the end of 2018, Hawtai had 31.8 billion yuan of outstanding debts, up from 25.9 billion yuan at the end of 2015, company financial reports showed.

Hawtai Motor Group’s B21 passenger sedan at the 2011 Shanghai Auto Show on April 19, 2011. Photo: SCMP/Mark Andrews.
Hawtai is also a shareholder of Bank of Jinzhou, owning 4.7 per cent of the troubled lender that last week received a 3 billion yuan financial bailout from I ndustrial and Commercial Bank of China (ICBC), China Great Wall Asset management and China Cinda Asset Management.

Hawtai owed bondholders 1 billion yuan in payments when they excised their put option in late July to sell the paper back to the carmaker. The bond, issued on July 2016, with interest rate of 6.18 per cent, is listed on the Shanghai Stock Exchange.

China’s government leaders have instructed financial regulators to “carefully manage the pace and severity of risk disposals” in the capital markets, according to published minutes of the a July 30 meeting by the Politburo, as the Communist Party’s highest decision-making body is called.

The company is technically insolvent, and the Shanghai bourse operator is trying to mitigate any risk of its financial woes from spilling over to hurt the wider financial market, according to sources close to the SSE. Hawtai’s founder Zhang Xiugen could not be reached for comment.