NUS Risk Management Institute flags 16 China firms with high bond default risks

NUS unit flags 16 China firms with high bond default risks

The Business Times

13 March 2014

[SINGAPORE] Sixteen Chinese companies face a high chance of having their bonds default over the next year, given a lack

of cash and problems of overcapacity in their industry, data from National University of Singapore’s Risk Management

Institute (RMI) showed.


The attention to Chinese corporate debt – which stands at 70 trillion yuan (S$14.4 trillion), or 120 per cent of China’s gross

domestic product – comes as Shanghai Chaori Solar Energy Science & Technology became the first Chinese company to

default on payment for its onshore bond last week. The solar panel maker said that it would not be able to make coupon

payment of 89.8 million yuan that had been due on March 7. It could pay just four million yuan.


“A significant portion of the debt has been used to expand capacity in a number of industries linked to the domestic real estate

boom, or that were assigned importance by the Chinese government in response to the global financial crisis,” said analyst

James Weston in a weekly credit report issued by RMI. “As a result, industries including the solar, steel, cement and

shipbuilding sectors are now plagued by overcapacity,” he added.


The institute filtered out 16 companies that would have problems repaying their investors soon. These include Ruitai Materials

Technology Co Ltd and Leshan Electric Power Co, which lack cash to repay investors of bonds that mature in the second half

of this year.


Most of the financial figures are based on data from end-September last year. The exceptions are that of Fiyta Holdings Ltd

and Leshan Electric Power Co, for which data is as at Dec 31 last year.


Ruitai, a Shenzhen-listed maker of fused cast refractories, has a 200 million yuan bond that is maturing in August this year,

but has cash of only 150 million yuan. Its net debt is 1.21 billion yuan.


Similarly, Shanghai-listed Leshan – which generates and distributes hydroelectric power – has a 200 million yuan bond due in

October, but its cash position stands at 82 million yuan. It has net debt of 1.63 billion yuan.


Others may miss their coupon payments. Paper product manufacturer MCC Meili Paper Industry Co Ltd has a 37.8 million

yuan coupon payment due in September, but the company reported just three million yuan of cash.


Chaori – which has until April 7 to pay its investors under a 30-day grace period – is unlikely to meet the deadline since it has

less than 60 million yuan of cash, RMI noted.


While Hangzhou Iron & Steel Co, and Xinjiang Ba Yi Iron & Steel Co Ltd are two cash-strapped companies with bonds also

maturing in the third quarter, RMI noted that these firms have a direct government owner, which means that they may get

some form of bailout.


These 16 companies, which include Chaori, are paying out coupons at the rate of between 4.55 per cent and 8.98 per cent.

RMI screened the companies using a measure known as their probability of default (PD). These 16 firms made up the worst 5

per cent of PDs of all Chinese corporations that were assessed.


Sixteen Chinese companies face a high chance of having their bonds default over the next year, given a lack of cash and

problems of overcapacity in their industry, data from National University of Singapore’s Risk Management Institute (RMI).

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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