Qinghai Salt, China’s largest potash maker, is set to post country’s biggest ever annual loss of US$6.8 billion
- Qinghai Salt Lake Industry’s market cap has shrunk about seven times from 190 billion yuan in 2008 to 23.4 billion currently
- The company started court-ordered bankruptcy proceedings in September last year
Chinese state-owned fertiliser maker Qinghai Salt Lake Industry is set to post an annual loss of as much as 47.2 billion yuan (US$6.8 billion) for 2019, the largest such loss in the history of China’s stock market, it said in a filing with the Shenzhen Stock Exchange over the weekend.
Qinghai Salt, China’s largest producer of potash, started court-ordered bankruptcy proceedings in September last year, a rare case in China, as regulators move towards a more market-driven approach with the country’s mammoth state-owned enterprises. It said the sale of a package of loss-making assets, implemented as part of a restructuring plan, was a write-off, and was a major contributor towards its record losses.
Qinghai Salt, once valued at 190 billion yuan in market capitalisation in 2008, could be delisted as a result of three consecutive years of annual losses. It reported a loss of 4.2 billion yuan in 2017 and 3.5 billion yuan in 2018. It’s losses for 2019 surpass the 16.2 billion yuan in losses reported by Aluminum Corporation of China in 2014. They are about twice the 23.8 billion yuan current market value of Qinghai Salt, or a seventh of the gross domestic product of Qinghai, its home province in northwestern China.
A decision in 2010 to venture into producing magnesium, which is commonly used in electronics such as smartphones and laptops, proved to be its undoing. It invested more than 60 billion yuan into a slew of factory projects. “The projects did not make profits as planned, and, instead, ate into the profits of our potash and lithium operations, leading the company into a difficult situation,” the company said in its filing.
The factories were deeply inefficient upon completion, while their construction budget had ballooned. Four safety accidents took place at the factories between 2011 and 2018, according to local media reports.
This resulted in a huge fall in its annual profit, from 2.5 billion yuan in 2012 to 341 million yuan in 2016, before its annual results reversed into losses in 2017 and 2018.
And after the company failed to sell the assets package, which includes its magnesium operations, for a sixth time at an auction on Thursday, state-owned investment firm Qinghai Huixin Asset Management agreed to buy it for 3 billion yuan. The package was offered for 17.8 billion yuan at the first auction, and was valued at 57.5 billion yuan previously in its financial statements.
The company’s shares fell by as much as 5 per cent in early trading on Monday, before paring its losses to 0.2 per cent to close at 8.56 yuan.
The market is focused on what the restructuring at Qinghai Salt will mean for investors in its three defaulted onshore bonds worth a total of 6.2 billion yuan.
