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英国金融时报就东北特钢债务违约采访分析师王国清

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A state-owned steelmaker in China’s northeastern Liaoning province has defaulted on a Rmb852m ($131m) corporate debt days after its chairman was said to have committed suicide.

Yang Hua, 53, who also acted as the Communist party secretary of Dongbei Special Steel, was confirmed dead on March 25 by the company’s website, a day after police received reports that he had hanged himself at his home

Mr Yang joined the Dalian-based steelmaker in April 2015 from his role as deputy chairman of Anshan Steel, where he had worked since the early 1990s. His death was cited by China Development Bank, which underwrote the debt, as a factor in Dongbei Special’s default.

CDB said that despite “great efforts” by the company to raise money, as well as “many meetings” with the local governments, the steelmaker had been unable to avoid default. A debenture-holder meeting would soon be arranged, it said.

Defaults from local state-owned enterprises are rare in China, but may become more common as rapidly declining demand combined with Beijing’s reform agenda begins to push underperforming companies into foreclosure.

Beijing is in the process of attempting to close hundreds of “zombie” companies in order to tackle overcapacity in the coal and steel sectors, but defaults risk transferring debt problems in the bloated industrial sector into fresh risks for a banking system struggling to rid itself of weighty non-performing loans.

Underperforming companies often subsist on life support for years, with preferential loans from local banks allowing them to build up crippling debts but never go under due to their role in providing fiscal income and employment.

“The average [debt to equity] ratio [for steelmakers] is about 70 per cent, but some companies have a ratio nearer to 90 or even 100,” said Wang Guoqing, a Beijing-based analyst at Lange Steel. “As soon as these companies are cut off, debt problems will come out.”

Dongbei Special Steel Group’s debt to equity ratio is 85 per cent, according to statements released in September.

Pressure for locally owned state steel mills to keep high employee numbers means weak balance sheets, according to Xu Zhongbo, of Beijing Metal Consulting. “[Dongbei Special Steel] is in a poor area when they are expected to employ lots of people.”

The central government has pledged a Rmb100bn fund to help with lay-offs, but such money does little to help with debts, said Mr Xu. “These companies are like Greece,” he said. “Every time they need help they ask for money, but it will soon run out and then they will need more money again.”

Aside from Rmb800m in corporate debt underwritten by China Development Bank, Dongbei Special also risks defaulting on Rmb1.015bn of 90-day commercial paper due in April, according to an announcement on the Shanghai Clearing House website.

Commercial paper issuance is a way for struggling companies to get loans from the market rather than the bank, said Li Hongmei, an analyst at Platts,

The downside is added market exposure, she said. “With the banks, you can still make an agreement, but with [commercial paper] there is much less flexibility as, by right, the investors will expect their payments back with interest.”

Dongbei Special is not alone in facing debt problems. Bohai Steel, owned by the Tianjin government, recently said it was negotiating a restructuring plan with creditors to deal with a Rmb192bn debt.

Debt in coal and steel, the two industries targeted by Beijing, is estimated at Rmb8tn — one-third of which is bank borrowings — according to the National Bureau of Statistics.

Local governments often balance the worry of adding extra non-performing loans to local banks’ balance sheets against mass lay-offs and resulting unrest that may come from collapsing zombies.

The combined pressure makes restructuring a personal matter. The government recently announced that local officials who failed to avoid “mass incidents”, a euphemism for protests, would lose their jobs.(Financial Times)