Caixin
Jan 16, 2020 04:51 AM
FINANCE

Leading Private Bank Pumps Funds Into Chronic Defaulter

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China Minsheng Bank took a 2.65% stake in debt-ridden Kangde Xin Composite Material Group Co. Ltd. through an investment vehicle in hopes of recouping some losses from its bond holdings in the serial defaulter.

Shenzhen-listed Kangde Xin said in a Tuesday filing that a Minsheng Bank-backed investment firm — Jinsheng Weihai Equity Investment Partnership — purchased 93.85 million of its shares in a recent legal auction, becoming the company’s third-largest shareholder. Kangde Xin remains controlled by Kangde Group with 20.75%.

The Jiangsu province-based laminating film manufacturer has been mired in debt woes after it missed payments on billions of yuan of bonds since the beginning of the year. Shocking the market with ample cash holding shown on its books, the company was later accused by regulators of faking documents to inflate its overseas profits by 11.9 billion yuan ($1.7 billion) for the four years through 2018. 

The collapse of Kangde Xin left bondholders in the lurch. Based on market records, Caixin calculated that Kangde Xin raised more than 8.8 billion yuan since 2014 through bond sales and private placements.

Information from a public auction site run by JD.com showed that the Jinsheng Weilai acquired 330 million yuan of Kangde Xin’s pledged shares from three of the company’s creditors — Zhongtai Trust, Zhongyuan Trust and Soochow Securities Co. Business records showed that the three companies invested in Kangde Xin’s debts on behalf of Minsheng Bank.

The stake buyer Jinsheng Weilai is also an investment vehicle controlled by Minsheng Bank, business registration record showed. Minsheng Bank is one of the biggest creditors of Kangde Xin, holding 6 billion yuan of unpaid debts of the company and affiliates.

“It is a normal operation for Minsheng Bank to dispose of bad assets as there is no other way” to recoup the assets, said a person close to the bank. The deal has nothing to do with Kangde Xin’s debt restructuring plan, added the person, speaking on condition of anonymity.

Kangde Xin has defaulted on several bonds this year. On Feb. 15, the company missed a 55 million yuan interest payment on a 1 billion yuan five-year note after defaulting on two short-term debt instruments totaling 1.5 billion yuan of principal in January. In March, the company failed to pay $9 million of interest on a $300 million bond.

Negotiations between the company and creditors have dragged on for months, but no agreement has been reached. In a December meeting with bondholders, the company pledged to work out a solution within three months, which may involve asset and debt restructuring or bankruptcy. A creditor representative said Wednesday that local officials have stepped in, and a restructuring plan can be expected as soon as early February.

The handling of Kangde Xin’s crisis will also affect 130,000 retail investors who hold the company’s Shenzhen-listed shares and are waiting for regulators’ decision on whether it should be delisted, analysts said.

An investigation by the China Securities Regulatory Commission (CSRC) found that Kangde Xin faked its overseas sales by misrepresenting shipments of plastic it uses in its production process as sales of its optical film products. The company shipped the products abroad and gave them away, then faked clients’ signatures to fabricate business contracts and create a fictitious overseas supply chain, the regulator found.

The CSRC also found that the parent company embezzled as much as 53.1 billion yuan of Kangde Xin’s funds from 2014 to 2018 through its accounts at Bank of Beijing Co. Ltd.

Earlier in May, Kangde Xin’s former chairman and controlling shareholder Zhong Yu was detained by local police. Kangde Xin’s auditor, Ruihua Certified Public Accountants, has been placed under investigation for negligence. On July 31, the National Association of Financial Market Institutional Investors (NAFMII), a bond market regulator, barred the company from any debt financing.

Contact reporter Han Wei (weihan@caixin.com)

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