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Chinese state-owned coal firm to make good on bond payment

(Reuters)
Updated: 2016-04-13 15:15
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    A unit of state-owned ChinaCoal Group said on Tuesday it will pay off principal and interest on overdue commercial debt on Wednesday in full, without specifying the source of its funds.

    ChinaCoal Group Shanxi Huayu Energy Co Ltd failed to pay 637.7 million yuan ($98.76 million) in principal and interest on domestic short-term commercial debt maturing on April 6, one of a string of recent defaults among Chinese companies.

    "The company has overcome numerous difficulties, actively strived to raise capital from various channels, and now decided to pay off the debts in full on Wednesday," Shanxi Huayu said in a statement posted on the website of the Shanghai Clearing House.

    Shanxi Huayu's case was the first domestic bond default by a company controlled by a state-owned coal mining group since 2012.

    Shanghai Pudong Development Bank is the underwriter for Shanxi Huayu's commercial debt, the statement said.

    China's bond market has witnessed an increasing number of defaults over the past year as the country's economy slows and Beijing moved to slash capacity in traditional industries including steel and coal, and state-owned companies - once considered safe bets - have begun to show signs of stress.

    The National Development and Reform Commission (NDRC) ordered issuers to take stock of their ability to repay principal and interest and submit reports by April 15 every year, starting this month, according to three sources with direct knowledge of the notice and a copy seen by Reuters.

    On Monday, state-owned China Railway Materials Co Ltd suspended trade in 16.8 billion yuan worth of its debt instruments, citing operation difficulties and payment issues.

    Fitch Ratings said in a report this week that Shanxi Huayu's default highlighted the very difficult situation that many Chinese coal mining companies face.

    Lower prices, weak demand and over-capacity have significantly weakened the balance sheet of not only smaller-scale companies such as Shanxi Huayu, but also major players such as Yanzhou Coal Mining Co Ltd and China Shenhua Energy Co Ltd, Fitch said.

    However, the domestic bond market has remained calm so far, with traders betting that more stimulus spending, policy easing and tax cuts will help issuers avoid default, and average bond yields have remained accommodative.

    ($1 = 6.4573 Chinese yuan)

 

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