Malinvestment in Anshan

Not only could Anshan's government not pay the developer for a housing project under the build-transfer model, but the development started falling apart the first day people moved in.

China's Debt Risks Come to Fore in Housing Project

The Laodong Road Social Welfare Housing Project is just over a year old, but residents are already complaining of leaky pipes, empty storefronts and broken lights. The apartment complex's financial situation is even more troubled.

The builder of the 1.3 billion yuan ($209 million) project agreed to fund the construction, and the northern Chinese city of Anshan, where the complex is located, agreed to pay for it when the project was complete.

But the financially struggling city didn't come up with the cash. To make good on its promise, Anshan went to China's shadow-banking system to raise the money via a trust to pay the builder. It promised to pay the investors in the trust a healthy interest rate.

......The project put another strain on the finances of Anshan, known as China's steel capital and home to the world's largest jade Buddha. Angang Iron & Steel Group Co., one of China's biggest steel companies, accounts for around one-fifth of the city's revenue, but its listed subsidiary has struggled with losses.

"Angang used to make up a major portion of Anshan's revenue, now it's less," said Wu Yanwei, chief of American and Oceanian affairs in the Anshan Foreign Overseas Chinese Affairs Office. "The decline of the steel industry has had significant impact on Anshan."

......In December 2012, all parties agreed that Anshan would pay MCC 1.3 billion yuan for the project, according to an MCC stock-exchange filing in November last year. The price that was agreed on originally wasn't disclosed.

Anshan didn't pay the bill, and analysts suspect the city didn't have the cash.

......MCC last year blamed build-transfer projects for a sharp increase in its long-term receivables. At the end of 2013, its accounts receivable totaled 132 billion yuan, five times the amount in 2008, although the total fell by more than half in the first quarter of this year.

The article mentions Angang Steel. That firm has lost more than ￥17 billion in the past three years as a nearly ￥23 billion project in Bayuquan district of Yingkou is a dud thanks to steel overcapacity. If Yingkou sounds familiar......In Yingkou, Liaoning Unfinished Buildings Stretch For 50 Square Kilometers; Real Estate Graveyard

鞍钢三年亏损超170亿元 220亿鲅鱼圈项目生不逢时

May 30, Anshan Iron and Steel Group Corporation ("AISC") released first quarter earnings update data, the company not only significantly reduced year on year revenue, net profit is 569 million yuan loss, losses only in the March on of more than 2 billion respectively.

　　Industry downturn, serious contradiction between supply and demand, making the domestic steel industry was facing a "two by squeezing" the grim situation: continued high iron ore prices upstream and downstream steel prices remain low. Affected by this, known as the "Republic of the steel industry's eldest son," said the Anshan Iron and gradually developed into a predicament.

　　Even so, it did not give up investment in Angang Yingkou Port steel projects. Due to the more high-end product positioning, the project was high hopes, but the ability to maintain profitability in the steel industry perennial cold, there is time to be tested.

　　Three losses exceed 17 billion yuan

　　"To achieve the Anshan Iron and Steel Group [microblogging] 2015 group-wide profitability targets for the first time Congress raised the key in 2014, the top priority is to strive to achieve breakeven whole group, including Anshan area to ensure profitability 2000000000 yuan, and strive to profit 3,000,000,000 yuan. "Angang chairman, party secretary Zhang had an internal meeting on the case statement.

　　However, running the first quarter of view, Anshan Iron and Steel to accomplish business objectives is clearly challenging.

　　According to Angang earnings disclosure, the company's operating income 36.513 billion yuan from the same period last year fell to 35.738 billion yuan, down 775 million yuan, while operating profit, gross profit and net profit and other financial indicators remain negative, which, net Loss for the first quarter of 569 million yuan, only the March on Kuidiao more than 2 million.

( 2.81 , 0.01 , 0.36% )

　　June 2, "First Financial Daily" reporters comb found in the net, the Anshan Iron and Steel from 2011 onwards, a loss is difficult to change the situation for many years, which, in 2011 losses of 1.553 billion yuan in 2012, a sharp rise in the amount of loss, to Despite the amazing amount of 11.348 billion yuan loss in 2013 being narrowed, but still up to 4.334 billion yuan. Total losses of 17.235 billion yuan for three years.

　　For the moment the situation, Zhang also well aware. He said internal meeting that achieve these goals, it is extremely difficult to be hard work hard work, "it is necessary to strictly control the cost, the second is to strengthen innovation-driven, three good job procurement and sales, four are bigger resources industry, five non-steel industry is QUICKER. "

　　The good news is that the recent iron ore import prices have been showing a downward trend. Development and Reform Commission recently released information industry Coordination Division, as of May 22, the price of imported iron ore 98.3 U.S. dollars / ton, the average price of 101.7 U.S. dollars / ton, a significant decrease of 25% compared to last year, to some extent alleviate the decline in industry profits predicament.

　　But imported iron ore prices fall, to have the advantage of domestic ore Angang, it also means that resources decline, and thereby increase business difficult.

　　Guotai Junan Futures [microblogging] Institute provides research reports show that due to the decline in mid-May rebar spot ore imports far more than the decline in value, "compared with early May, steel mills have reduced profit, net profit has seen some steel prices loss. "

　　This was confirmed in a large steel Hubei persons: The main production of steel plate and steel, due to higher costs, net present rebar and plate have suffered losses, losses of less than 100 yuan per ton.

　　Side edge investment losses

　　In analyzing the huge losses in 2012, Anshan side said that in addition to "steel market prices have fallen sharply, a decline of higher raw material prices decline, making corporate profit margins continue to shrink," and other factors, but also pointed out that "sunrise Yingkou and two saddle Ling Company commissioning of a new steel base downturn in the steel industry, has been put into operation at a loss. "

　　Bayuquan project is regarded as the implementation of China's iron and steel industry development plan approved construction of the first coastal layout steel base. One to five million tons of heavy plate hot rolling and projects, which are mainly located in the container steel, steel, ship high value-added, high-tech products.

　　Angang September 29, 2007 release of "Angang Steel Company Limited 2007 allotment manual" disclosure, rights issue to raise funds will be used for the construction of Yingkou Port steel project or repayment of bank loans, the total investment of 22.6 billion yuan.

　　According to the announcement disclosed that the project since August 2008 are built and put into operation in 2009 of its blast furnaces, converters, continuous casting, 1580 hot-rolled, plate mill has achieved full production, when iron, steel, timber production reached 5.28 million tons , 5.05 million tons, 4.35 million tons.

　　By this time, the domestic situation in the steel industry is also undergoing profound changes.

　　Industry downturn, serious contradiction between supply and demand, making the domestic steel industry was facing a "two by squeezing" the grim situation. In the first four months, the steel production capacity further release, but the domestic steel enterprises profit loss 1.14 billion yuan, an increase of 4.42 billion yuan loss.

　　"Product Positioning Angang Bayuquan project for sheet and plate material, but the time when the domestic steel prices plummeted during production, steel sales difficulties, combined with their initial production on higher amortization expense, making Bayuquan project put into operation immediately become burden on the company. "People who had industry analysis.

　　In fact, until 2013, after the completion of the first phase of Bayuquan project continues to increase investment. Data show that in 2011, at the end of Angang increase of 73% over the beginning of construction, which only Bayuquan project expenditures increased 1.513 billion yuan in 2012, Bayuquan project budget of 8.421 billion yuan, 1.021 billion yuan year increase of actual investment in 2013 years and actually increase 633 million yuan.

Here's a price chart of Chinese steel companies. Click to see the large version. These companies may still have risk due to debt levels, but they're certainly closer to their bottom than their top.