Chinese steelmaker defaults on HK$1 billion debt just days after ‘chairman commits suicide’
Dongbei Special Steel says it could miss an even bigger payment in early April
A steel group in northern China failed on Monday to repay 852 million yuan (HK$1 billion) in corporate debt, just days after its chairman was found dead in an apparent suicide.
A bigger default is expected from Dongbei Special Steel Group, as corporate leverage ratios rise sharply and Chinese industry battles persistent slowing growth.
Dongbei Special Steel, a steelmaker owned by the Liaoning provincial government, failed to repay creditors 852 million yuan in one-year notes and interest on Monday in a rare default by a local government-owned company in the interbank bond market.
The Dalian-based steelmaker also said on the website of the Shanghai Clearing House that it was very likely to miss the payment of another tranche of debt worth 1.015 billion yuan, in the form of 90-day “super short-term commercial paper” and interest, due on April 5.
While defaults by private businesses and state enterprises under the central government are not new, local governments have so far sought to avoid such defaults out of fear of a ripple effect.
The failure was the eighth credit default in China’s debt market this year, reflecting growing dangers in China’s corporate debt sector amid excess capacity and a broad economic slowdown.
In March alone, sausage maker Nanjing Yurun Foods, and iron ore company Zibo Hongda Mining defaulted on their notes.
The confirmed default and the warning of another imminent one by Dongbei Special Steel came just four days after chairman Yang Hua reportedly committed suicide by hanging himself at home.
China Development Bank, the chief underwriter of the defaulted notes, said in a statement on the Shanghai Clearing House that Yang’s death had disrupted debt repayment plans.
“On the night of March 24, after learning the accidental death of the chairman and that the previously arranged fund-raising plan could not materialise, we immediately set up an emergency team and started an emergency plan .. that night,” according to the state bank’s statement.
“As the chief underwriter, we have made our best effort,” the bank said – although China Development Bank is often regarded as having access to limitless funds.
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Instead of using its own funds to cover the debt, the bank said it had held “many meetings with the Liaoning government and Dalian government” to work out a debt repayment plan. CDB would continue to press the debt issuer to raise funds, it added.
Products from the steel company were used in China’s spaceships, Chinese-developed planes and high-speed railways, according to the company’s website.
But now Dongbei Special Steel, with majority ownership in the hands of the Liaoning provincial government, was facing “big liquidity pressure”, with the company’s debt amounting to 45 billion yuan as last September, or 85 per cent of its total assets then, the China Development Bank said.
The steelmaker said it had tried “to reduce inventory and to raise funds from multiple sources” in the last weeks but failed.
