2014-07-14

Xilin Steel on Verge of Bankruptcy

Xilin steel is the largest producer in Heilongjiang province.

Some background: Chinese steel set for consolidation
The struggle with profitability was thrown into relief this week by reports of a strike at the Xilin Iron & Steel Group, the largest (5m tonnes per year) private plant in Northeast China’s Heilongjiang province. Workers have not been paid for five months.

The firm was ¥19 billion in debt at the end of Q1. That ¥19 billion doesn't seem like a large figure, but the Yichun economy is less than ¥26 billion. The local Yichun government extended a ¥40 million loan to the company and is currently working to have all relevant government departments and banks support the firm. The local government is unwilling to let the firm close because it contributes greatly to the local economy by way of jobs and taxes. According to one person close to Xilin Steel, Heilongjiang still has a large demand for steel and Xilin is one of only two major producers left in the province; another was purchased by a Liaoning steelmaker.

The article doesn't delve into consolidation in the industry, but with consolidation seen as a solution to overcapacity, local and provincial governments are playing a game of survivor. The strongest firms will acquire and the weakest firms will go bankrupt or be acquired.

黑龙江最大钢企西林濒临破产 建行农行风险暴露
Recently, the largest iron and steel enterprises in Heilongjiang Xilin Iron and Steel Group Co., Ltd. (hereinafter referred to as: Xilin Steel) broke a 19 billion quarterly debt, bankruptcy news.

According to informed sources, specialized lending Xilin Steel Yichun city government 40 million yuan, to provide protection for the life of Xilin Steel workers to ensure Xilin Steel ride out the storm, and called on enterprises Xilin Steel corporate donations. Yichun city government is actively coordinating relevant departments as well as major banks resistant steel to provide the necessary support.

"Because a lot of iron and steel enterprises, especially large-scale iron and steel enterprises in the high rate of local financial contribution each year to pay a lot of taxes, and it is labor-intensive industries, but also provide jobs for local economic development is very important, so local Government can hardly put down. "one steel industry source said.

In 2014, the steel industry collective cold, many steel mills was broke high debt, unable to continue. Many mills have had to face bank loans difficult to recover loans, poor climbed reality. But the story does not end there, in order to help mills turnaround, many local governments to come forward and take the initiative to coordinate local banks to help finance the mills. Thus, local banks had to face at high risk for the steel companies continue to "awkward" financing.

Local bank seal affixed and tear, asset preservation is unclear how

According to the reporter, because the profits, funding constraints, shortage of raw materials and other issues, Xilin Steel production is still only one wire and a bar production line, and two 1,260 m3 blast furnace, and only one in operation.

Reliable data show that: in 2012, the total losses of more than 1.4 billion profit Xilin Steel, the average loss per ton of steel sold a 200 yuan; 2013, Xilin Steel "back to life", the total profit of around 200 million; total profit in the first quarter of approximately 239 million. Compared to the profit income, total liabilities Xilin Steel more "garish": As of the end of 2011, Xilin Steel liabilities total more than 23 billion yuan by the end of 2012, total liabilities increased to nearly 24 billion yuan, assets and liabilities was 99.78%, to A quarter of the total liabilities decreased approximately 190 million.

190 million in Yichun City, the 2012 GDP258 million small city regarded as an astronomical figure. Even if this figure equal shares to all eligible Yichun financial institutions engaged in lending business, it is not a small number.

In order to understand what liabilities of 19 billion yuan of financial institutions are, the reporter contacted the Office of Xilin Iron and Steel Group, the staff said, "Xilin Steel usual" when reporters asked whether you can understand the financial situation of the company, get back is: if any other questions, please contact the Group's Propaganda Department. After reporters try to contact Xilin Iron and publicity propaganda minister Xie, within a few days no dial phone.

Although Xilin Steel liabilities over 19 billion, but lending relationship can now be found in Xilin Steel and between local banks are rare. According to the reporter, in 2010 China Construction Bank Yichun Branch Xilin Steel offers eight kinds of financial products and services, total financing 2.43 billion yuan; 2011, Yichun Construction Bank also provided loans to 400 million yuan in Liaoning lighthouse's Xilin Steel Mining Co., Ltd.; 2012 , Yichun Branch of the Agricultural Bank of Xilin Iron and Steel and other areas to the backbone of business loans of 1.5 billion.

Money Weekly reporter, respectively, to the ABC and CCB branch Yichun understand the situation, both the staff said they could not disclose the loan amount and Xilin Steel between. Money Weekly (micro-channel public No.: money-week) reporter tried to understand the situation from the CCB head office Department responded get is "currently in the verification and coordination, there is no formal reply."

It is understood that, in April 2013, Xilin Steel structural optimization and upgrading technology transformation project two major construction projects as a 1260m blast furnace, a 120t converter, a production of 1,000,000 tons wire-speed wire production line, the project total investment of 10 billion yuan, which raised 400 million yuan, 600 million yuan from the bank loan.

600 million yuan debt now amounts to 19 billion Xilin Steel, this is obviously just the tip of the iceberg. If unable to rescue bankrupt Xilin Steel, nor the new party then set into the case, a number of financial institutions will have to face huge losses.

"A few days ago, the factory's many products and devices are affixed the seals Bank and some institutions, these days they are torn." One Xilin Steel plant employees told financial weekly newspaper reporter. Currently, how to preserve the assets of the agencies, reduce losses, is unknown.

Government "blood transfusion", local banks risk

According to informed sources: Yichun city government is actively coordinating relevant departments as well as major banks resistant steel to provide the necessary support. Large steel enterprises operating difficulties, coordinated by local government financing, Xilin Steel is not the case. Recently, a similar situation occurred with the Xilin Iron & Steel Group and four Chuanwei, Chuan Wei Group funding strand breaks occur after the issue, the local government is also actively coordinating with the active local banks. It is understood that there are two banks began to provide financial support to Chuan Wei Group.

"Because now the demand for steel is still very large, Heilongjiang, Heilongjiang Xilin Steel is the only 'two and a half' iron and steel enterprises, a resistant steel, as well as one in Shuangyashan, Liaoning acquired by another, from the government point of view, it will not it says bankruptcy bankruptcy "a person close to Xilin Steel to the financial weekly (micro-channel public No.: money-week). told reporters.

Xilin Steel is known as "Long steel spine", was founded in 1966 as a joint-stock enterprise restructuring in 2005, currently has an annual production capacity of 3.5 million tons of steel, is one of the key metallurgical industrial enterprises. According to the reporter, "Xilin made" in the Northeast, and even the country is a brand, previously, there are a number of media reports over fake news Xilin Steel steel market.

In order to help steel companies "blood transfusion", the pressure to the bank side. Last year, Jiangxi, Hebei iron and steel enterprises were forced to close due to funding strand breaks. Statistics show that by 2008, China's key steel enterprises assets and liabilities were lower than 60%, and subsequently increased year by year, the end of 2010 reached 64.03 percent in 2012 to 68.5% in 2013 to reach a gearing ratio of 69.4%. At present, the steel industry is one of the biggest exposure risk industries CBRC established.

"Resistant steel from the point of view of our province and equipment and production capacity in the province is good, the only drawback is that it is now some of the capital chain tight, if there should be capital injection will be better." These persons close to Xilin Steel told reporters. Xilin Steel can continue to get funding, to maintain production probably play on a big question mark.

"There are still Chui Wang Xilin Iron Mountain Iron yet for mortgage loans, Tsui Hong Shan iron ore reserves are very large, value is also high, if used as collateral, maybe you can borrow, would help solve the Xilin problems. "one YUTAILONG staff told reporters.

"This is because the market has long been sluggish, dropping lower and lower steel companies benefit liabilities have piled up, and finally led to the industry reshuffle funding strand breaks, are possible. Last year, some small steel mills, and this year appears amoxicillin Such large-scale iron and steel plant, there may be more in the future. "an iron and steel industry insiders said.

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