Corporate bond defaults are rising in China, and the latest is a Beijing-based state-owned group that controls 1,177 subsidiaries and eight listed companies unable to pay principal of RMB205 million (US$30.45 million).
China National Machinery Industry Corporation Ltd (Sinomach), a state-owned enterprise directly managed by the central government, announced that its subsidiary Jinan Foundry and Metalforming Machinery Research Institute Co., Ltd. failed to pay principal of RMB205 million (US$30.45 million) in debt obligations.
The RMB205 million default includes RMB65 million from Bank of China, RMB120 million from China Construction Bank, and RMB20 million from Huaxia Bank.
Sinomach said banks tightened their lending process, which caused liquidity challenges for its subsidiary, leading to the default.
In 2018, a total of nine issuers were involved in 11 bond defaults with total value of RMB8 billion (US$1.2 billion), according to China Lianhe Credit Rating Co., Ltd. The numbers are higher compared to last year, but there were no detailed data on the percentage increases.
Sinomach holds 59.3% stake in the Jinan subsidiary. But it said the later’s total asset and revenue only accounted for 0.14% and 0.04% of the group’s total asset and revenue in the first quarter of 2018, meaning its default will have minimal impact on the group.
Founded in 1997, Sinomach’s primary businesses include four main areas of R&D and manufacturing in mechanical equipment, project contracting, trade and services, as well as finance and investment. As of the end of 2017, the group owns 1,177 subsidiaries and eight publicly listed companies, including China CAMC Engineering Co., Ltd., Lanpec Technologies Ltd., and Sumec Corp Ltd.
A giant group with a large number of subsidiaries, Sinomach also saw its total liabilities rising. At the end of 2017, it had total liabilities of RMB259 billion (US$38.8 billion), with a 7.13% increase year-on-year. About 81% of its liabilities were current liabilities.
As of the end of 2017, its total debt stood at RMB94.7 billion (US$14 billion) with a 6.34% year-over-year increase. Its debt-to-asset ratio was 67.87%. The firm also recorded negative RMB577 million (US$86.5 million) and negative RMB7.1 billion (US$1 billion) of net cash flow from operating activity and investing activity respectively.