Caixin
Dec 05, 2019 04:18 AM
FINANCE

Defaulted Tunghsu Asks Banks to Keep Lending Without Promising Repayment

Tunghsu makes request in Friday conference with dozens of creditors and multiple financial regulators. Photo: VCG
Tunghsu makes request in Friday conference with dozens of creditors and multiple financial regulators. Photo: VCG

Debt-ridden Tunghsu Group Co. Ltd. is trying to persuade lenders not to take back loans earlier than previously planned or stop loaning it money, even though the maker of electronic display panels said it can’t repay defaulted bonds.

Tunghsu met Friday with more than 170 creditors and multiple local financial regulators to discuss the defaults by its Shenzhen-listed subsidiary, Tunghsu Optoelectronic Technology Co. Ltd. Investors jokingly called it an “annual conference” of financial institutions.

The unit said last month in a Shenzhen Stock Exchange filing (link in Chinese) that it was unable to repay more than 2 billion yuan ($283 million) of principal and interest on two notes, citing “short-term liquidity difficulties.”

The news shocked the market as the company had promised to repay the notes on time only a week earlier. It then defaulted on another bond due Monday, according to a Tuesday filing (link in Chinese).

Tunghsu did not come up with a repayment plan and instead tried to placate attendees, a creditor who was at the Friday meeting told Caixin.

“They brought regulators to open the meeting and appease creditors, and asked lenders not to take back loans early or stop lending within the next two years, but said it is currently impossible to pay us back,” the person said.

  Read more  
In Depth: Missed Payments Put Focus on Tunghsu’s Unusual Financials

Tunghsu Optoelectronic joined a lengthening list of Chinese enterprises to go into default as the world’s second-largest economy continues cooling. Bloomberg reported that at least 15 defaults since the start of November have pushed this year’s total to 120.4 billion yuan, approaching the 121.9 billion yuan record set in 2018.

Investors are concerned that Tunghsu may not be able to repay other bonds. It has 15 outstanding issues totaling 19.6 billion yuan, with 8.9 billion yuan set to mature within the next 12 months. They also worry about potential ripple effects, as Tunghsu could trigger a cascade of defaults if investors sell off bonds issued by sibling companies en masse.

Established in 2004, Tunghsu expanded rapidly since 2009 through a series of major acquisitions. But some bond investors have long speculated that Tunghsu would default sooner or later as doubts rose about the company’s asset quality. Some also said they believed that Tunghsu bought its own bonds in an effort to attract real investment.

In the third quarter, Tunghsu Optoelectronic posted an operating revenue decline of 33.3% year-on-year to 4.1 billion yuan as net profit attributable to shareholders plunged 36.4% to 290.7 million yuan.

Tunghsu did not provide any information about absorbing state capital at the meeting, although it previously said it was looking for a lifeline from the local government where it is headquartered, in Shijiazhuang, the capital of North China’s Hebei province.

Tunghsu Optoelectronic said in a filing (link in Chinese) last month that Tunghsu’s controlling shareholder was considering handing over its 51.5% stake in Tunghsu to the state-owned asset administrator of Shijiazhuang. But creditors doubt the authenticity of the potential deal, according to a source from a mutual fund firm holding Tunghsu bonds, as they do not believe local government financing vehicles in the city have the ability to inject liquidity into Tunghsu.

Zhang Yuzhe and Han Wei contributed to this report.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Gavin Cross (gavincross@caixin.com)

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