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Bankruptcy looms as bonds blocked for Dongbei Special Steel: analysts

(Global Times)
Updated: 2016-09-29 09:45
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    The financial sector's self-regulatory body halted new bond issues by troubled Dongbei Special Steel Group Co on Wednesday, a move that makes it highly likely the steelmaker will go bankrupt, analysts said.

    The National Association of Financial Market Intuitional Investors said on Wednesday that Dongbei Special Steel has to "correct its behavior that violated regulations," and the body had halted further debt issues by the company, according to a post published on its website.

    The steelmaker has not yet announced its 2015 results or those for the first quarter of 2016, the post showed.

    Dongbei Special Steel will no longer be able to raise funds through bond issues, Wang Guoqing, research director at the Beijing Lange Steel Information Research Center, told the Global Times on Wednesday.

    "It has to look for other ways of getting financed, for example, by asking other enterprises for help," she said.

    It was to be expected that the regulatory body would stop Dongbei Special Steel from issuing new bonds, as the company has lost its credibility after a series of defaults, Ivan Chung, associate managing director at Moody's, told the Global Times on Wednesday.

    The company announced another default on Monday, its ninth in 2016. The total defaulted principal amount by Dongbei Special Steel was estimated at 5.1 billion yuan ($764.08 million) since March, domestic news site yicai.com reported on Monday.

    The company did not respond to a Global Times request for comment as of press time on Wednesday.

    However, the company's debt restructuring plan is in progress, Beijing-based financial news website eeo.com.cn reported on Tuesday, citing some unidentified executives from Dongbei Special Steel. By 2018, the company's revenues are expected to reach 35 billion yuan, and the debt ratio will drop to below 60 percent, the report noted.

    The company's total revenues in the first three quarters of 2015 were 14.5 billion yuan, but its debt-to-asset ratio has surpassed 80 percent by the end of May, media reported in August.

    "It's still highly likely that Dongbei Special Steel goes bankrupt," Chung said, noting that a debt restructuring is about reaching a compromise between shareholders and creditors. If they can't reach an agreement, the company will have limited options other than bankruptcy.

    The cutoff of bond financing via lending institutions will further weigh on the operation of Dongbei Special Steel, according to a research note released by the China Metallurgical Industry Planning and Research Institute on Wednesday.

    If the company can't achieve financial stability and sufficient cash flow, there might be a layoff involving "thousands of employees," it said.

    Besides bankruptcy, other possible solutions for the company are carrying out a debt-to-equity swap or looking for potential buyers, said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology.

    "But the best option is a merger and acquisition deal for Dongbei Special Steel, like Baosteel Group and Wuhan Iron and Steel Group combined to a mega steelmaker to increase effectiveness," he told the Global Times on Wednesday.

 

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