Yongcheng Coal Gets Nine-Month Reprieve to Repay Defaulted Bonds

Chinese state-owned coal mining company Yongcheng Coal and Electricity Holding Group Co. Ltd. dodged a bullet and avoided triggering defaults on billions of yuan in debt as creditors agreed to concessions on a 1 billion yuan ($152.4 million) of bonds that were due Nov. 10. Now Yongcheng is seeking extensions on other debt.

At a meeting hosted Monday night by underwriters China Everbright Bank and Zhongyuan Bank, Yongcheng Coal bondholders unanimously agreed to accept a 50% payment of principal and to extend the balance of principal and interest by 270 days, according to a statement posted Tuesday by Shanghai Clearing House.

The extension will avoid triggering cross-protection clauses on 15 billion yuan of Yongcheng Coal bonds and 11.5 billion yuan of debt issued by its parent company, Henan Energy and Chemical Industry Group Co. Ltd. Under the cross-protection clause, if Yongcheng couldn’t repay the principal on its 1 billion yuan bond by Tuesday, the default would trigger defaults of the parent’s bonds.

Yongcheng Coal is also seeking a 270-day delay on repaying five remaining ultra-short-term bonds, along with asking for an 18-month extension on several outstanding three-year medium-term notes. Two of the securities with a combined 2 billion yuan of principal were due Monday. Individuals with knowledge of the matter told Caixin that the company is likely to also propose paying back 50% of the principal on the two bonds first.

The coal mining company’s surprise default roiled China’s corporate bond market. Many investors sold off bonds issued by state-owned enterprises (SOEs) and mining companies, and some enterprises either canceled bond sale plans or slashed their fundraising targets. The default might cause SOEs in Henan province to face an increase of at least 200 basis points, or 2 percentage points, in their financing costs, one fund manager estimated.

As of noon Tuesday, Yongcheng Coal transferred 500 million yuan to China Everbright Bank’s account for the partial principal repayment, according to a bondholder who reported viewing the transfer receipt.

The agreement was brokered with the help of the Henan provincial government, according to sources close the talks. Yongcheng Coal’s parent is the province’s largest SOE by assets. The government was prepared for the worst: If an extension wasn’t accepted, the government would help the company repay the bond in full to avoid triggering cross defaults, according to the sources.

If the company gets extensions on any other bonds, the terms should not be better than the first extension reached Tuesday, and if any future extension agreements have better terms, the holders of the first defaulted bond would get paid under the sweetened terms, according to the agreement reviewed by Caixin.

Yongcheng Coal has an additional 7 billion yuan of bonds and its parent has 2.5 billion yuan of bond due in the first half of 2021.

It is unclear how Yongcheng Coal will come up with the money for repayment. The sources told Caixin that the company had only 700 million yuan in cash on its balance sheet when the default occurred. One source with knowledge of the matter told Caixin that the Henan provincial government has offered cash support.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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