Chinese newspaper reports have flagged that a slate of debt defaults among state-owned mining companies this year — comprised of two steel producers, a coal miner and a nonferrous metals company — may indicate that the government is becoming less willing to offer bailouts but may allow troubled mining companies to restructure their financial liabilities instead.
Earlier this month, China's State Council gave the green light for the central government-owned Sinosteel Corp. to replace 27 billion Chinese yuan in overdue debts with convertible bonds.
The move marked the first-ever debt-to-equity swap deal for a Chinese state-owned company.
Another state-owned steel producer, Bohai Steel Group Co. Ltd., which owed at least 192 billion yuan overdue loans to various financial institutions, is also seeking approval for a similar deal with the municipal government in Tianjian, a city in northern China, according to a Caixin report in August. The local government is currently setting up an equity investment fund to acquire the steel producer's overdue loans from lenders, the report cited anonymous sources as saying.
In a separate report from China Business Journal in August, Jing Xuechen, a senior official from the Chinese central bank, was cited as saying that Beijing will encourage more debt-heavy, state-owned enterprises, or SOEs, to swap debt for equity to improve their liquidity. The State Council, together with the Ministry of Finance and other central government divisions, is expected to issue guidelines in the following months.
Wang Guoqing, research director of Beijing-based Lange Research Center, told SNL Metals & Mining that the bigger picture is that Chinese authorities are seeking to introduce more funds from the private sector into troubled SOEs in a bid to infuse "energy" into these companies.
"By introducing more shareholders, the government aims to set up more efficient management and supervisory mechanisms for troubled, debt-laden SOEs," Wang said, adding that the Chinese government is very unlikely to provide guaranteed bailouts but will lead restructuring plans to attract more private funds.
A list compiled by Reuters on Sept. 27 showed that there has been a total of 30 default cases in China's credit debt market this year, of which 12 were by three state-owned miners — including Dongbei Special Steel Group Co. Ltd., Sichuan Coal Industry (Group) Co. Ltd. and Guangxi Nonferrous Metals Group.
However, not every SOE weighted with debt has been able to reach an agreement with creditors to restructure.
In September, the southwest China-based Guangxi Nonferrous Metals, which had debts totaling 14.5 billion Chinese yuan as of March, was ordered by the intermediate court at Nanning, the capital city of the Guangxi Zhuang Autonomous Region, China, to liquidate, becoming the first bankruptcy of a bond issuer in China's interbank market, according to a Caixin report on Sept. 26.
The company applied for bankruptcy restructuring in December 2015 in the hope of introducing strategic investors or reaching a debt restructuring agreement with existing creditors, but failed, the report cited an anonymous executive from Guangxi Nonferrous Metals as saying. The Guangxi provincial government once considered offering a bailout but did not follow through, the report said.
Earlier this year, another state-owned mining company, Yunnan Coal Chemical Industry Group Co. Ltd., applied for bankruptcy restructuring at the intermediate court at Kunming, in the capital city of Yunnan province, according to a report from Chinese newswire The Paper on June 29.
If accepted by the court, the coal miner could hold off paying interests on four bonds worth about 5.5 billion yuan. The company had defaulted on 1.31 billion yuan in debts as of Oct. 30, 2015, according to the report. The Yunnan provincial government is considering bailing out the company, but no agreement has been reached yet, the report said.
Wang argued that, in addition to a company's financial and operating conditions, whether an SOE is successful in negotiating a restructuring also depends on the bargaining power of their respective local governments.
As of Sept. 29, US$1 was equivalent to 6.67 Chinese yuan.