Two China firms miss $717.5m bond payments as woes grow

Private sector firms accounted for more than 80 per cent of total defaults this year. PHOTO: AFP

BEIJING (BLOOMBERG) - Two Chinese companies failed to repay bonds worth a combined 3.7 billion yuan (S$717.5 million) on Monday (Dec 2), underscoring rising debt risks in the highly leveraged nation as the economy slows.

Peking University Founder Group was unable to secure sufficient funding to repay a 270-day, 2 billion yuan bond, according to a company filing to the National Interbank Funding Center. Tunghsu Optoelectronic Technology Co failed to deliver repayment on both interest and principal on a 1.7 billion yuan bond, according to Shanghai Clearing House.

The quickening speed of bond defaults in China, especially among ailing private firms, highlights the growing financial strain triggered by the country's worst economic slowdown in three decades and unabated trade tensions with the US. Last week, industrial firm Xiwang Group failed to pay a 1 billion yuan bond, missing a fresh repayment deadline on an already defaulted bond.

"It's getting harder for companies to get funding help when facing a debt crisis, unless they're centrally-controlled companies and local SOEs that have great importance to the local economy," said Yang Hao, fixed income analyst from Nanjing Securities Co.

Founder's missed payment on the bond, which has a 15 business-day grace period, is set to escalate concerns about the weak finances of debt-laden business arms of Chinese universities. The company and Tsinghua Unigroup Co, a top chipmaker run by arch-rival Tsinghua University, have been under the spotlight in recent months following a tumble in their dollar bonds.

Founder Group's debt-asset ratio rose to 82.74 per cent as of the end of June from 81.94 per cent at the end of last year, with net losses widening to 1.05 billion yuan from 867 million yuan in the same period.

Tunghsu's five-year paper was originally due December 2021 but investors recently opted to exercise a put option on it. The electronic display panel maker has now missed three onshore bond payments in the past month.

Tunghsu failed early repayment on 1.97 billion yuan of principal and interest on a note on which bondholders similarly exercised a put option. It also was unable to make good on an interest payment on another local bond.

Tunghsu Group's financial woes are indicative of China's sluggish manufacturing sector, which saw spending only barely above the record low level hit in September.

It also highlights the payment struggles faced by the nation's private firms, which are being hit harder by the economic slowdown. Their access to the banking sector remains limited as lenders focus more on politically influential state-owned companies.

Private sector firms accounted for more than 80 per cent of total defaults this year, according to Bloomberg-compiled data. Moody's Investors Service said it expects 40 to 50 new, first-time defaulters in 2020, compared with 35 so far this year.

The drama is far from ending. Shandong-based Xiwang is slated to repay interest on Tuesday on a 1 billion yuan, 7-year bond due 2022. The corn oil and steel processor is among a cluster of private firms from the province where they are well known for vouching for each other's debt.

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