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First Chinese State-Owned Firm Defaults On Its Bonds
Just hours after Chinese property developer Kaisa defaulted on two dollar-denominated 2018 notes (the 30-day grace period on some $52 million in interest due March 18 expired), we learn that a third publicly-listed Chinese firm will now miss a coupon payment proving yet again that “you never know where the skeletons in the closet are or what company will be next.”
This time it’s Baoding Tianwei Group Co.. which, as Bloomberg reports, has been struggling for quite some time:
“Our company suffered huge losses in 2014 and the debt to asset ratio surged quickly,” Baoding Tianwei said in today’s statement. “Our company has lost financing ability and suffered from a capital shortage. We can’t raise enough money to repay interest, despite all the efforts we have made.”
Baoding Tianwei had a loss of 10.14 billion yuan in 2014, according to today’s statement. A statement from the company on April 3 showed that by the end of last year, Tianwei had some 1.86 billion yuan of overdue borrowings. Its 22.96 percent stake in listed firm Baoding Tianwei Baobian Electric Co. has been frozen by local courts because of its dispute with creditors, according to China Credit Rating Co.
The interesting thing about Baoding Tianwei though, is that it’s a subsidiary of a state-owned firm and initially, some observers wondered whether the parent would step in to avert a default by the power transformer manufacturer which needed to make nearly $14 million in interest payments on April 2016 notes by the close of business Tuesday.
As it turns out, the government did not intervene and Baoding Tianwei has indeed defaulted marking the first default by a state-run enterprise.
The implication is that Beijing may allow the market to play a greater role in determining companies’ financial future — even if those companies are state-run. This sets up an interesting dynamic considering that 1) it’s looking increasingly likely that the dreaded “hard landing” will materialize in China, and 2) at more than $14 trillion as of 2013, the country has the largest corporate debt burden on the planet. Here’s Bloomberg again:
China’s economy expanded at the weakest pace since 2009 last quarter, with output, investment and retail data pointing to a deepening slowdown, data released by the statistics bureau in Beijing on April 15 showed. On Sunday, the central bank cut the reserve-requirement ratio for banks by 1 percentage point, stepping up stimulus policies.
China’s corporate debt is the highest in the world, former central bank adviser Yu Yongding wrote in the official China Daily last week. Companies had $14.2 trillion in debt at the end of 2013, exceeding every other country including the U.S., which had $13.1 trillion in company obligations, Standard & Poor’s said in a June report…
“We need to be aware the government won’t be able to protect all the state-owned companies,” Ivan Chung, an analyst at Moody’s Investors Service, said in a phone interview today. “For those that are not strategically important, they may receive less government support and encounter repayment difficulties when their fundamentals weaken.”
For its part, China South Industries Group (Baoding Tianwei's state-owned parent) had the following to say about the issue:
"The affair has no connection with us."
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Gotta love it, I build a company that I own & control, moreover, because I'm the state I can do whatever I want and never suffer any legal backlash because of it... It's indicative to asking (or in this case demanding?) everyone to invest in a pot of gold at the end of the rainbow, but when you get to the end of the rainbow all you find is a state representative saying "Solly Cholly", you're fresh out of luck...
That's ruck not luck. I kid our Chinese friends.
>Defaults On Its Bonds
Is this the equivalent of eating its own guts.
we're all in sheep dip when the Chinese Communist state owned businesses are practicing healthier capitalism than anywhere in these United States today.
and if that is REALLY what's going on-we're double-plussed screwed
"We can’t raise enough money to repay interest, despite all the efforts we have made.”
But you can guarantee that the family members of the company VIPs are still lounging around in one of their San Marino homes thanks to the all cash transactions...courtesy of the bond holders...whoever they are.
Maybe they hav'nt got to the end yet, so once you arrived, you were alone.
Chinese Stock Market Trading simplified: https://www.youtube.com/watch?v=KezvwARhBIc
This could have easily been papered over, what gives?
I would go with internal politics here. Somebody in company A does not like somebody in company B. Maybe not enough kick backs?
It is funny....
Increasingly, China is behaving in a capitalist manner (allowing companies to default by running them on strict profit or loss basis, allowing residents to invest abroad, arresting top politicians for corruption etc)
While America is behaving in a socialist (bail outs, food banks etc) as well as communist manner (police and social media surveillance, highest prison population in the world, not to mention killing black people everyday etc)!
10 years ago one would have thought America would behave in a capitalist manner and China would be killing its domestic population while having the largest population in the world. One would have taken for granted that China would have had the largest population of people in prisons or China would be doing mass surveillance.
Where did America go so wrong?
Wasn't just America, they want to know where it all went wrong, but the list just goes on and on.
True that.
However, these two are the 2 biggest nations that impact most of us.
Today, Army has been called in South Africa, however, its impact on rest of the world is limited. In Niger, churches are being burnt but doesnt impact rest of the world.
If Army were to be called in NYC or in CA...that would be a different thing....;) and that day is not too far...:) probably a few years away.
We saw a march about by the Army for the first time in memory in Oakland, California last week......already. http://losangeles.cbslocal.com/2015/04/16/national-guard-marches-through...
Can you tell me more on this default in bonds by a chineae company . western.media exaggerating as usual . Bloo.berg said Chinese companoes are facing problem in repaying their dollar debts . Seriously wtf ? western presstitutes .
Sure Max.
Any company can default any time, but only when the business that they are in, is crumbling.
It is not an exaggeration but yes some companies have defaulted in China. This is the third one approx. Last year, a coal company defaulted which was allowed by China, because coal prices are down massively.
This month, 2 companies have defaulted. One was Kaisa and another is this one today which was owned by a state owned comapny but run on strict P&L principles.
Now compare this to 50 IPO's happening every month currently in China i.e. about 600 listings PER ANNUM. There are thousands of companies listed and hundreds more owned by the Govt out of which just 3 have defaulted.
We must also remember that we must compare how the situation is globally. 10 years ago, life was much better.
Today in 2015, things are much worse, globally.
The largest bank in Portugal shut down but no one compares Chinese defaults to that. The largest billionaire in Brazil went bankrupt losing USD 34bn but no one compares a few million of a small Chinese company to that. 4 large billionaires went bust in India but no one compares to that. South Africa is imploding and so is Syria or Yemen or Ukraine.
None of these were happening 10 years ago hence no defaults were happening in China as well.
Coal, steel, oil and most commodities like copper etc are at several year lows if not multi decade lows.
The pressure is building up.
Kaisa's total bonds are USD 1bn to USD 2.5bn by different estimates but there was a white knight being Sunac who has now walked away but they could still come back. This is a good overview. http://www.cnbc.com/id/102603753
This size of today's default by a subsidiary of a state owned co. was also small. Though they could be bailed out but there are indications that Govt wants to let private companies fail if the markets go against them. So far there is no indication that the bond was guaranteed by the Govt.
http://www.globaltimes.cn/content/917959.shtml?
Last years first coal company default was just USD 47m. http://uk.reuters.com/article/2014/02/12/china-trust-default-idUKL3N0LH1...
In US, Detroit, Stockton and Lehman went bankrupt for billions.....and there was no impact on rest of the world..as compared to that Chinese defaults are just in millions.....they are not even a rounding error and all markets have shrugged them off..since these are old bonds issued under old regulations.
Unless we see multiple mega billion dollar defaults in China, there is not much to worry about.
The whole banking system in China is Govt owned as are most large companies like oil companies or ports or railways and they are talking of slowly privatizing them which are profitable companies unlike many other natins so the govt will get more cash in the next few years.
Also many real estate companies who have borrowed a lot of money are investing abroad thus creating USD revenue streams. If they fail, it wont hurt the Govt or the other sectors that are doing very well.
One of the very important factors why there is no major stress even for foreign lenders into Chinese companies (unlike South Africa or BRazil or India or so many other countries where the currencies have depreciated anywhere from 50% to 100%) which causes so much more pressure. Imagine paying back double the money that some company borrowed 5 or 10 years ago.
We saw defaults in Spain, Dubai, Iceland, Brazil ...everywhere which were unheard of 10 years ago.
In comparison to all those, Chinese defaults are very small, in private sector and predominantly have some background that we are unware of. There is an anti corruption wave in China since last year. Prostitutes have actually run away from China to other countries so intense is the pressure of prosecution and jail time. Ministers have been put in jail for years for corruption, billionaires have been executed. It is all a transition and cleansing of the country so that in future there are no more surprises like we are seeing in India currently where 3 billionaires are in jail today.
The defaults, anti corruption etc make China that much more stronger and will give a notice to all businessmen and politicians that the Govt will not help them so they better be careful and handle their debt loads themselves.
Compared to US or EU, the numbers are very small while both the incorporated companies and bonds issued are larger and growing rapidly, but the defaults are not a major concern due to the size of their population and the amount of reserves that Govt has.
If China can buy Volvo and Peugeot or bankrupt Portuguese bank or help Pakistan, Argenina and Russia etc with hundreds of billions of dollars, then they can surely handle their own debt load!
MERCI .
Seems the Chinese government likes to regularly stomp on bubbles. They have been trying like crazy to cool real estate with severe lending restrictions. I think they are stomping on state owned debt now by allowing some defaults. It's central planning light and is nothing like what we have in the west. Because the Chinese government prints it's own money, they can selectively bail out strategic areas and not allow the usual cascade of defaults that happens when private bank created money rapidly disappears. How long has the "China is going to crash any day now" story been on Zerohedge every month?
As long as China retains control of money printing, they will never crash.
You wan roose finger or arm?
Print money, problem solved.
Alternatively they can take the other american approach: Fudge numbers, problem solved.
They already do both.
Wei No Got.
If you can't trust the State, who can you trust?
Yo momma, you can't love um, you can't trust um.
http://www.bloomberg.com/news/articles/2015-04-21/new-york-apartments-ar...
Here is a new discovery, Ney York apartment is better store of wealth
The apartments and most of the artwork, however, don't fare so well at the bottom of the lake.
Taiwan gets by with Capitalism .... maybe the Maoists .... should revisit .... their stupid socialist theories !
We can't raise enough money to pay interests
Actually, the interesting question is how many chinese companies are succeding right now in raising enough money to pay interests
So what, this is a country run by a communist single party system of government? All is forgiven, for the good of China.
Foward!
Pretty much like the US/EU nowadays. Washington's 2 party shame is just that and all your $$ go to the Zionists anyway. EU the commissiners are running the show and I'll be dame if anyone elected them!
So your comment is redundant! Just a pig dressed in Cinderella drag. All the same shit, but atleast taxes are retained in China as oppose to US taxes going to Puerto Rico and then relent to the US government. What a irony, you have to pay interest on your own money!!
Default is for the little guys