China Energy misses payment on bond, triggers cross-default

HONG KONG • China Energy Reserve & Chemicals Group (CERCG) said it failed to repay a US$350 million (S$469 million) bond that matured earlier this month due to "tightening in credit conditions", the latest Chinese company to default amid a crackdown on financial risk.

The missed payment triggered a cross-default on other offshore bonds including the firm's US$400 million 2021 and HK$2 billion (S$342 million) 2022 notes, the oil and gas producer said in a statement to the Hong Kong stock exchange on Sunday.

It is the latest in a wave of corporate debt defaults amid a broad government-led campaign to crack down on risky financing, and follows a reminder recently from China's securities regulator that exchanges should monitor default risks.

"Due to the tightening in credit conditions in the PRC (People's Republic of China) over the last two years, the guarantor has had restricted access to financing channels in the PRC, including bank loans and onshore bond issues," CERCG said.

The cash flow and capital requirements of the company and its subsidiaries had continued to increase, resulting in a liquidity crunch, it said, adding that it planned to divest certain assets to resolve its cash flow problems.

The default highlights growing funding strains on Chinese companies as Beijing increases scrutiny of riskier types of financing and rising debt, which some outside agencies have warned could lead to a banking crisis.

More corporate defaults had already been expected in China this year as the government extends its campaign to reduce financial risks across the broader economy.

The default highlights growing funding strains on Chinese companies as Beijing increases scrutiny of riskier types of financing and rising debt, which some outside agencies have warned could lead to a banking crisis.

CERCG grabbed headlines earlier this year when a unit pulled out of a US$5.2 billion deal to buy a Hong Kong skyscraper from billionaire Li Ka Shing.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 29, 2018, with the headline 'China Energy misses payment on bond, triggers cross-default'. Print Edition | Subscribe