The news this week of China's largest corporate bankruptcy - Haixin Iron & Steel Group - amid crashing iron ore and steel prices was followed by analysts noting it "will be followed by others," as the major flaw of producers of iron ore, the most traded commodity after oil, is they tend to be "over-bullish." Distressed debt funds are starting to circle in preparation for what they expect to be a bloodbath as Bloomberg reports, bad debts in China are well underestimated because authorities persist in propping up weak companies and bailing out local investors, according to DAC Management, "we've yet to see it because if you look at corporate defaults, they keep getting covered by the government. At some point, they can’t cover every single one." Most worryingly though, as KPMG points out, "when you see restructuring advisers getting hired by SOEs... you know it's coming."
“Instead of reorganization efforts conducted by local governments, this is an inevitable trend that China will take more ailing steel mills to the courts to protect creditors,” Xu said by phone from Beijing.
But apart from the entire Steel industry being on the verge of bankruptcy... China is doing great!
“There has to be a restructuring of the Chinese steel industry,” Eder said.
“The iron-ore producers are getting more and more aware that their growth expectations have to be redefined. There are enormous over-capacities and more is coming on stream. This will increase the pressure.”
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And as Bloomberg reports, as far as distressed debt in China - you ain't seen nothing yet!
Bad debts in China are well underestimated because authorities persist in propping up weak companies and bailing out local investors, according to DAC Management LLC.
The Chicago-based asset management and advisory firm, which focuses on distressed credit and special situations in China, says the worst is yet to come, and that means lots of opportunities for the world’s biggest distressed debt traders.
“They keep reporting such a low number for so many years, there’s only one way it can go -- up,” DAC founder Philip Groves said in an interview in Hong Kong yesterday. “We’ve yet to see it because if you look at corporate defaults, they keep getting covered by the government. At some point, they can’t cover every single one.”
Oaktree Capital Group LLC, the world’s biggest distressed debt investor, joined with China Cinda in November 2013 to tap what it said were “unique opportunities” in the country’s real estate market.
“In China, we see a lot of opportunities out there, especially among Chinese banks,” Hanson Wong, Hong Kong-based chief executive officer of Belos Capital (Asia) Ltd. said in an interview. “They are facing some difficulty right now, they cannot keep extending their loans time and time again.”
“When you see restructuring advisers getting hired by state-owned enterprises and Big Four accounting firms helping banks to get rid of distressed assets, you know it’s coming,” he said.
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Is it any wonder the PBOC cut rates? But of course - as we noted previously - this does nothing to cover the gaps in these companies overbloated balance sheets or extend their credit any further...