Two Chinese firms fail to repay bonds worth $716 million

Tunghsu Optoelectronic Technology, seen here at the International Graphene Innovation Conference last year, failed to deliver repayment on interest and principal on a 1.7 billion yuan bond this week. Separately, Peking University Founder Group failed
Tunghsu Optoelectronic Technology, seen here at the International Graphene Innovation Conference last year, failed to deliver repayment on interest and principal on a 1.7 billion yuan bond this week. Separately, Peking University Founder Group failed to repay a 270-day, two billion yuan bond.PHOTO: TUNGHSU GROUP

Defaults underscore rising debt risks amid China's slowing economy, trade row with US

BEIJING • Two Chinese companies failed to repay bonds worth a combined 3.7 billion yuan (S$716 million) on Monday, 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, two billion yuan bond, according to a company filing to the National Interbank Funding Centre.

Tunghsu Optoelectronic Technology 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 United States. Last week, industrial firm Xiwang Group failed to pay a one 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 state-owned enterprises that have great importance to the local economy," said fixed-income analyst Yang Hao from Nanjing Securities.

Founder Group'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, 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.

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

Tunghsu's five-year paper was originally due in December 2021 but investors recently opted to exercise a put option on it.

The maker of electronic display panels has now missed three onshore bond payments in the past month. It failed early repayment on 1.97 billion yuan of principal and interest on a note on which bond holders 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.

They also highlight 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 data compiled by Bloomberg.

Moody's Investors Service said it expects 40 to 50 new, first-time defaulters this year, compared with 35 so far this year.

The drama is far from ending. Shandong-based Xiwang was slated to repay interest yesterday on a one billion yuan, seven-year bond due in 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 one another's debt.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on December 04, 2019, with the headline 'Two Chinese firms fail to repay bonds worth $716 million'. Print Edition | Subscribe