China Minsheng Investment says it cannot repay the principal and interest on US$500 million of bonds as its debt woe deteriorates

A cash crunch at one of China’s best-known conglomerates is getting worse as the company said it will not be able to pay its upcoming dollar notes.

China Minsheng Investment Group’s offshore unit said in a filing that it won’t be able to repay the principal, as well as the interest on the 3.8 per cent US$500 million bond due August, after considering its liquidity and performance. On Thursday, the property-to-financial conglomerate announced it only managed to repay part of the principal on a 6.5 per cent 1.46 billion yuan note.

The development underscores the liquidity crisis that has been pressuring the Shanghai-based company that aspired to become China’s answer to JPMorgan Chase & Co. It will be the first time that the firm’s dollar bond creditors will miss out on repayment. Defaults have been on the rise among Chinese firms, with the tally continuing its ascent in tandem with the slowing economy.

CMIG in April said cross-default clauses were triggered on its dollar notes totalling US$800 million. These include US$300 million of debt that China Construction Bank repaid on the company’s behalf in June as the bank provided a standby letter of credit – effectively a pledge to repay if the borrower cannot. Its dollar bond due next month was quoted around 50 cents on the dollar on Friday, down from about 75 cents earlier in the week, according to credit traders.

CMIG is the brainchild of Dong Wenbiao, the former chairman of China’s largest non-state bank who’s known as the “godfather” of the nation’s private sector. Dong convinced 59 private sector companies to join forces as the company’s founding shareholders.

CMIG’s funding eventually dried up as its investments struggled and lenders pulled back because of tighter regulation.