First interbank bond issuer collapses

Added 22nd September 2016

More defaults are expected as China’s state-owned Guangxi Nonferrous Metals Group has become the first interbank bond issuer to go bankrupt.

First interbank bond issuer collapses

An intermediate court in Guangxi's capital Nanning declared earlier this month that the group will go bankrupt.

It is unsure how much creditors can get from the RMB 14.5bn ($2.2bn) worth of debts, and how many bonds of its are trading in the China Interbank Bond Market (CIBM).

The implications of the bankruptcy are still uncertain.

China Chengxin (CCXI), a domestic credit rating agency, noted in a report that the news might trigger a “trust crisis” on how these state-owned enterprises are supported by the provincial government.

“The level of support by the provincial government would depend on the value of protecting the company, and the fiscal ability of the provincial government.”

CCXI said it does not rule out the exit of other SOEs through bankruptcies.

The metal group’s parent is the Guangxi provincial government.

But some analysts believed the event is largely in line with market expectations.

“In 2015, when the company narrowly avoided a default on its midterm note, the market became increasingly pessimistic about its ability to repay debt, especially after the company experienced management reshuffles and the transfer of the equity of its subsidiaries, which made its debt paying ability even weaker,” Ming Ming, chief fixed-income strategist at Citic Securities in Beijing, told the SCMP.

Guangxi Nonferrous Metals Group's repayment problems emerged in June last year when it was having trouble repaying RMB 1.3bn of principal and RMB 62.92m of interest on its private placement note, according to Caixin. China Development Bank soon bailed it out. 

In April this year, it also missed a payment on an RMB 500m three-year private placement note with a 5.56 percent coupon rated BB, Caixin noted, due to "consecutive losses and the fact that it has already entered bankruptcy reorganisation procedures".

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