Struggling Shenyang Machine Tool Gets $1.4 Billion Government Lifeline

(Beijing) — Shares of Shenyang Machine Tool Co. Ltd. fell 2.5% on Thursday as trading in the stock resumed after announcing major new support from its hometown city government for the massively money-losing company.

Shenyang Machine Tool, based in Liaoning’s namesake provincial capital, has fallen victim to a broader slowdown in the machine tool sector, which supplies equipment to industries engaged in production of cars, airplanes, boats and electronics. Many companies from the sector are now losing money due to a slowing Chinese economy.

Under its new agreement, Shenyang Machine Tool will get support from China Construction Bank, one of the nation’s top four lenders, and the Shenyang branch of the State-Owned Assets Supervision and Administrative Commission (SASAC), the agency that oversees big state-run companies and is one of Shenyang Machine Tool’s major stakeholders.

The package includes a 10 billion yuan ($1.45 billion) rescue, which will be used mostly for reduction of the company’s debt and a broader reorganization of its business, according to a Thursday filing to the Shenzhen Stock Exchange.

According to its latest annual report, Shenyang Machine Tool’s net loss more than doubled last year to 1.4 billion yuan, as revenue fell by 2% to 6.2 billion yuan. One of its peers, Dalian Machine Tool Group Corp., made headlines earlier this year when it announced it had defaulted on some of its short-term bills.

“Downstream demand for machine tools comes from the auto, aviation and ship industries that require strong demand,” Citic Securities said in a report. “China’s economy showed signs of recovery in the second half of 2016, but the degree wasn’t big and the period was short. … We estimate that increases in fixed asset investment by the manufacturing sector will trend down in 2017, and thus it will be hard for the machine tool sector to stage a major turnaround.”

Contact reporter Yang Ge (geyang@caixin.com)