Debt, debt, and more debt; here, there, and everywhere. From Tyler Durden at zerohedge.com:
While the macro watchers were keenly awaiting China’s macroeconomic data dump on Sunday night, which was far worse than reported (as we will show shortly), a just as notable development was taking place in China’s microeconomic world, where as the FT reported on Sunday, China’s state-owned SinoSteel, the country’s second largest importer of iron-ore, and a major miner and steel trader (yes, another commodity trader) was “poised to default on its bonds this week, the latest test of whether Beijing is willing to impose market discipline on national champion companies.”
As the FT adds, “Sinosteel, one of an elite club of 112 state groups directly owned by the central government, sent a letter to investors last week warning that its subsidiary lacked the funds to repay principal and interest on Rmb2bn ($315m) in bonds sold in 2010 due on Tuesday.”
“The company’s business has stagnated and cash flow has dried up at headquarters and a portion of subsidiary enterprises,” said the letter, a copy of which circulated on social media on Friday.
Transparency is not Chinese insolvent corporations’ strong suit: “Sinosteel was not available for comment. A person who answered the phone at Sinosteel refused to transfer calls to the company’s media relations department.”
None of this is a surprise: we reported nearly a month ago that more than half of China’s commodity producers are technically insolvent at current commodity prices (a finding which CLSA later used to back into a whopping 8% NPL for the Chinese banking sector), and don’t generate the cash flow to pay even the interest on their debt, let alone fund maturities!
And yet, Sinosteel’s troubles, which mirror those of peer companies Glencore and Noble Group, did surprise some despite clear warnings by other: “The company has lost debt repayment ability. It can only rely on external support,” Jiang Chao, Haitong Securities bond analyst, wrote last week.
However, while China’s leadership has huffed and puffed about freeing its markets and imposing the “business cycle”, even if it means a surge in default, it remains reluctant to “tolerate public defaults due to fears about financial instability. Sinosteel investors are hoping that the government or another state entity will step in with a last-minute bailout. Last month state-owned heavy machinery producer China National Erzhong Group narrowly averted default when its parent company said it would buy outstanding bonds from investors.”
To continue reading: China’s Glencore
