Dongbei Special Steel Group Forced Into Bankruptcy

(Beijing) — China's largest specialty steel producer was finally driven into bankruptcy after the company defaulted on 3.6 billion yuan ($540 million) in debt, missing eight payments since March, according to a creditor document circulated online.

The Liaoning provincial government "has confirmed that Dongbei Special Steel Group will enter bankruptcy proceedings, and the bankruptcy plan is expected to come out by the end of September, and the provincial government demands the implementation of the plan to be completed in October," says a creditor meeting summary that began circulating online Wednesday morning.

Dongbei is based in the northeastern port city of Dalian.

Sources from China Development Bank, the underwriter of the bonds issued by Dongbei, and several bondholders confirmed the bankruptcy to Caixin.

The summary shows that Bank of China's Dalian branch convened an urgent meeting Monday, when it briefed creditor banks about the latest debt disposal progress. However, holders of the steelmaker's bonds were not included in the meeting, a bond investor told Caixin.

Credit defaults in China reached 26.8 billion yuan so far in 2016, more than double the total value of 12 billion yuan in debt defaults last year, according to Wind, a Chinese financial data provider, as the country overhauls industries with excess capacity amid the ongoing economic slowdown.

Earlier last month, the steelmaker resisted pressure from its bondholders to file for bankruptcy. The about-face raised questions among investors about the amount of assets that the company still had.

Since September 2015, Dongbei has not made public any financial reports, defying persistent demands from its creditors.

Dongbei was stitched together in 2004 by Liaoning, which merged three steel producers — Dalian Iron & Steel Group, Beiman Special Steel and Fushun Special Steel. Dongbei is the controlling shareholder of Fushun, which is on the Shanghai stock exchange.

According to a document drafted by the Liaoning government about tackling the debt crisis in Dongbei that came to light in July, the province wanted to safeguard the equity of Funshun Special Steel, as it involves military industry.

The same document also reveals that the ratio of Dongbei's debts to assets had reached 120 percent, and its liabilities jumped by 10 billion yuan to 55.6 billion yuan in May since September 2015.

Contact reporter Dong Tongjian (tongjiandong@caixin.com); editor Ken Howe (kennethhowe@caixin.com)