Crisis at China Minsheng - a JPMorgan wannabe - deepens on bond defaults

SHANGHAI • A debt crisis at one of China's most well-known private conglomerates entered a new stage on Thursday, with the company saying cross-default clauses had been triggered on dollar bonds worth US$800 million (S$1.1 billion).

China Minsheng Investment Group (CMIG) has appointed Kirkland & Ellis as legal adviser, according to a Hong Kong stock exchange filing, which also noted that banks have set up a creditor's committee to try to stabilise the company.

The cross default comes after CMIG's problems spread to its affiliate, Yida China Holdings, making some of the developer's debt immediately payable, and causing a chain reaction back to the parent company's own securities.

CMIG spooked investors with a late bond repayment earlier this year, joining other sprawling Chinese conglomerates such as HNA Group in struggling to repay debt after a spending spree.

Since its establishment in 2014, CMIG has spent more than US$4 billion on investments and amassed about US$35 billion of liabilities as of last September.

"CMIG's debt crisis will worsen as creditors will seek to freeze more assets if it defaults on onshore publicly offered notes," said Mr Chen Su, a bond portfolio manager at Qingdao Rural Commercial Bank. The problems will not be resolved unless CMIG finds more willing investors, he added.

CMIG's dollar bonds due in August traded at around 40 US cents on the dollar on Thursday, according to traders. CMIG said in the filing on the same day that it has also reached an agreement with holders of a privately placed note to extend the payment date to April 19, from April 8.

NO QUICK FIX

Solving CMIG's debt problem will hinge on its onshore creditor committee, and this may not be fully addressed soon.

'' MR SHEN CHEN, a partner at Shanghai Maoliang Investment Management.

Yida China's credit rating was cut to CCC from CCC+ late on Thursday at S&P Global Ratings, which said the company may face a liquidity crunch in the next 12 months, given the overhang of debt repayable on demand.

Signs of corporate stress appear to be spreading, despite China's stabilising economy.

Citic Guoan Group, a state-linked conglomerate, was downgraded on Wednesday after fresh asset seizures, helping trigger a plunge in its listed unit's shares. Tewoo Group earlier this month sought support from lenders to extend its debt amid a credit squeeze.

Bonds from at least 44 Chinese companies totalling US$43.7 billion face repayment pressure, according to company and ratings firm statements compiled by Bloomberg.

CMIG's defaults may harm investor sentiment towards future offerings from privately held and unrated issuers, according to Mr Patrick Liu, chief executive officer of Admiralty Harbour Capital, a Hong Kong-based debt specialist company.

Still, given the relatively small amount of CMIG's outstanding dollar bonds, with some backed by letters of credit, there will be limited impact on the offshore market, he said.

CMIG is the brainchild of Mr Dong Wenbiao, the former chairman of China's largest non-state bank who is known as the "godfather" of the nation's private sector.

Billing the company as a Chinese version of JPMorgan Chase & Co, Mr Dong convinced 59 non-state companies to join forces as the company's founding shareholders.

The company's funding eventually dried up as its investments struggled and shadow banks pulled back because of tighter regulation and slowing economic growth.

"Solving CMIG's debt problem will hinge on its onshore creditor committee, and this may not be fully addressed soon," said Mr Shen Chen, a partner at Shanghai Maoliang Investment Management.

There appears to be little synergy between the company's various holdings, and finding investors willing to pay for its assets at a good price while taking on a huge debt load will be challenging, he added.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 20, 2019, with the headline 'Crisis at China Minsheng - a JPMorgan wannabe - deepens on bond defaults'. Print Edition | Subscribe