Jan 11, 2020 04:48 AM

China 2019 Offshore-Bond Defaulters Span an Airport, Solar Tech


(Bloomberg) — China’s record boom in debt issuance abroad in recent years has left a sour aftertaste for bondholders: missed payments on billions of dollars of securities.

In what’s now become a new normal for the $815 billion-plus Chinese offshore-debt market, at least seven borrowers defaulted in 2019. About $3.6 billion of bonds went into default last year, up from $3.3 billion the year before, according to data compiled by Bloomberg.

The 2019 tally spanned a state-owned commodity trader to a onetime Coca-Cola Co. acquisition target. And with nearly half of the supply of stressed bonds — those with yields of at least 15% — coming due this year, the ranks of defaulters are expected to swell.

“I absolutely expect to see more onshore defaulters spilling offshore and repeat offenders this year,” said Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group Ltd. The pace is driven by increased issuance alongside moves by policymakers to squeeze China’s shadow financing sector, he said.

Here are short profiles of the 2019 offshore defaulters:

State-Owned Surprise

Tewoo Group Co. became China’s first state-owned enterprise in two decades to default on dollar bonds late last year. Based in the industrial city of Tianjin, southeast of Beijing, the company offered bondholders as little as 37 cents on the dollar for their securities. Tewoo’s businesses range from commodities trading to mining, logistics and infrastructure.

Tewoo ranked 132nd on 2018’s Fortune Global 500 list. It ran into a liquidity crunch last spring and ultimately had to default when no further official support was forthcoming. The work-out program outlined by Tianjin has now put a spotlight on state asset managers with the task of cleaning up troubled borrowers.

Private-Sector Financier

China Minsheng Investment Group Corp. once set out to become China’s version of JPMorgan Chase & Co. — a private-sector investment banking champion. At one time endorsed by Premier Li Keqiang, the group amassed about $34 billion in liabilities in 2018. After spending more than $4 billion on investments, it surprised bondholders with a delayed payment on its yuan bonds in January 2019. A few months later, default provisions were triggered on two of its dollar bonds.

With as much as $2.4 billion of debt maturing this year, according to Bloomberg-compiled data, the company is scrambling to free up cash by slashing executive pay and selling assets.

Power Failure

Huachen Energy Co. entered the defaulters’ ranks in December, when it failed to pay interest on a $500 million note before the end of a grace period. Huachen was indirectly wholly owned by Wintime Energy Co. as of September, according to Moody’s Investors Service. Wintime was already the No. 2 Chinese defaulter for 2018 in the domestic market, a casualty of policymakers’ moves to rein in leverage across the economy.

A coal miner, Wintime originally planned to borrow to fund acquisitions and expand into areas including finance and logistics. As borrowing costs tumbled from 2014, funding was easy to get. But that started changing in 2016, when President Xi Jinping began emphasizing reining in financial risks. Without a state-owned white knight, Wintime’s troubles kept rolling through 2019.

Accounting Violator

Kangde Xin Composite Material Group Co. appeared to be in solid financial health in 2018, but its accounts later proved to be fiction, according to a state regulator. The company, based in the eastern province of Jiangsu, defaulted on a domestic bond at the beginning of last year, and one of its units later reneged on a $300 million bond.

The China Securities Regulatory Commission said in July that Kangde Xin faced severe punishment for faking profits. Then in December, the company’s de facto controlling shareholder Zhong Yu was arrested over a suspected unspecified crime, according to a stock exchange filing.

Un-Sunny Days

Solar-farm operator China Singyes Solar Technologies Holdings Ltd. has been a repeat dollar-bond defaulter, failing to pay up on two offshore notes last year, including a $260 million bond. Private businesses have struggled to thrive in the solar sector as state-owned enterprises increasingly dominate, according to one credit rating company.

Hitting Turbulence

Haikou Meilan International Airport Co., the main facility serving China’s tropical Hainan Island, is backed by units of HNA Group Co. HNA shot to prominence between 2016 and 2017 after spending more than $40 billion on acquisitions across six continents, a debt-fueled spending spree that later came under Beijing’s scrutiny.

The airport operator failed to make good on a $200 million bond in September. HNA Group itself has yet to miss a repayment on a public bond, according to data compiled by Bloomberg.

Juicer in a Jam

A onetime target of Coca-Cola Co., China Huiyuan Juice Group Ltd. may be the country’s leading pure juice-maker, but its finances are in a squeeze. Struggling to recover from governance issues that emerged in 2018 — it loaned money to a company related to Chairman Zhu Xinli — it failed to repay a Hong Kong dollar convertible bond at the beginning of 2019.

Calls to Tewoo, Huachen Energy, Kangde Xin and China Singyes asking about repayment plans and challenges went unanswered. CMIG, HNA and Haikou Meilan Airport declined to comment. Huiyuan Juice didn’t immediately respond to emailed requests for comment.

You've accessed an article available only to subscribers
Share this article
Open WeChat and scan the QR code