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Bonds

China’s Wuzhou International misses US$204 million in bond payments

The company is among a rising number of Chinese firms to default on payments this year as a result of tightened government controls

PUBLISHED : Friday, 05 October, 2018, 9:16pm
UPDATED : Friday, 05 October, 2018, 10:32pm

Troubled mainland Chinese developer Wuzhou International Holdings said it had missed 1.4 billion yuan (US$204 million) in bonds payments and was also facing claims for at least 756 million yuan, adding to a string of earlier defaults and financial woes.

The company’s revelation comes amid the rising the number of bond defaults by Chinese companies this year as the government reduced implicit guarantees, in turn moral hazard, to steer the debt market towards a healthier development. State-owned mainland media reported that 21 Chinese companies defaulted in 48.6 billion yuan of bond payments in the third quarter, with listed companies accounting for half of the volume.

Property developers like Wuzhou International have been especially hard hit under Beijing’s deleveraging drive to reduce risks and its imposed curbs on lending to cool the overheated property market.

“The number of bond defaults of weaker, private companies will continue to increase in a steady, controlled manner,” said Judy Kwok-Cheung, a fixed income analyst at Bank of Singapore. But Kwok-Cheung said despite the increased number, the default rate of 0.2 per cent remained low.

Bond defaults in China are a necessary pain for a healthier economy

In a filing to the Hong Kong stock exchange on Thursday, Wuzhou International said it failed to repay 395.5 million yuan in principal and the 111 million yuan in interest for a portion of the second tranche of the 1.5 billion yuan 2016 corporate bonds on September 19.

In addition, it was unable to pay all of the 1 billion yuan in principal and 50.6 million yuan of interest on September 20 for the first tranche of 2017 bonds sold by its indirectly wholly-owned subsidiary Wuxi Wuzhou Ornament City.

Wuzhou International is due to appear in the Higher People’s Court of Ningxia Hui autonomous region, where a creditor has demanded the company to repay about 167.8 million yuan in loan and 8.9 million yuan in interest accrued up to August 27.

The number of bond defaults of weaker, private companies will continue to increase in a steady, controlled manner
Judy Kwok-Cheung, Bank of Singapore

It is also required to appear in the Intermediate People’s Court of Ningxia for the repayment of another 13.3 million yuan in loan and 170,800 yuan in interest owed to another creditor.

The statement said a joint venture partner had applied for arbitration to repurchase the equity interest for 126.3 million yuan and seek 35.8 million yuan payment for damages.

An unnamed bank has also demanded a loan and interest repayment of 291.1 million yuan and 2.5 million yuan respectively, according to the statement.

Bond default in Xinjiang the latest sign of stresses in China’s financial system

Wuzhou International attributed its failure to repay its debt to unspecified “financial difficulties”.

“The company is now actively exploring various ways to remedy the defaults … and handle the various legal proceedings and claims as mentioned above,” it said in the statement.

Last month, the developer said it had suspended seven projects under construction or in operation.

Its shares last traded at 4 HK cents before they were suspended on September 3. The stock had lost 96 per cent since its January peak.

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