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Steel firm and creditors see no love lost in public battle
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TROUBLED Dongbei Special Steel Group Co and its creditors continued with their battle publicly as investors pushed for the firm’s bankruptcy and objected to a potential debt-to-equity swap that could worsen its debt, according to the investors’ latest proposal yesterday.
Dongbei Special Steel, a Liaoning-based unlisted steelmaker, defaulted on at least seven debt instruments worth 870 million yuan (US$130 million) this year, triggering a broad-based Chinese bond market sell-off in April and highlighting the growing debt of state-owned companies in China’s mainland.
Dongbei’s bondholders urged the country’s securities and banking regulators to ban financial institutions from buying bonds of all Liaoning-based companies in their previous proposal.
But the proposal was removed from the motion yesterday as it “may damage the credit market” of the local government, financial magazine Caixin cited a report by China Chengxin Credit Rating.
The proposal was approved by China Development Bank, a primary underwriter of Dongbei’s debt, but has no legal force, market insiders said.
“Dongbei and the Liaoning government are feeling the pressure,” a person with the China Development Bank told Yicai.com. “If the local government doesn’t provide follow-up solutions, the seesaw struggle will continue.”
The consecutive defaults of Chinese corporate bonds fuel speculation of the government’s intervention to save companies that are “too big to fall.” However, key policy-makers, including central bank officials, have signaled a tougher stance toward using public funds to rescue SOEs, Moody’s Investors Service’s Hu Kai said.
The Chinese government will “help but not bail out” the rising corporate bond defaults as “the central authority will be cautious before stepping in as we have to manage the actual loss of taxpayers before taking any action,” Minister of Finance Lou Jiwei told finance chiefs from the Group of 20 leading countries on Sunday.
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