State-Owned AA+ Rated Yingkou Port Defaults on 530 Million, Has 68.7 Billion in Debt

A debt-fueled construction binge by Yingkou Port has pushed the state-owned company into a default. Yingkou is the second largest port in Northeast China, and is in Liaoning province, which has led China with a string of defaults over the past four years after the economy slowed in 2014. See: In-Depth: Where is the Greatest Risk of Bond Default in China?

Sina: 网传营口港5.3亿违约 687亿负债涉及8家大行被坑？

A few days ago, a picture was transmitted from the Internet, suspected to be a reply letter from Yingkou Port(2.590, -0.28, -9.76%) concerning the "Confirmation Notice for the Everbright-Yingkou-Yingkou Port Debt Investment Plan Principal and Interest Payment". The reply stated that due to Due to the shortage of funds in the port, Yingkou Port Group was unable to repay the principal and interest of RMB 530 million due to the “Guangdong Everbright-Yingkou Port Debt Investment Plan”, and applied for Everbright Sun Life Asset Management Co., Ltd. to adjust the Yingkou Port Debt Investment Plan. Repayment plan.

Yingkou Port Group Co., Ltd. was previously the Yingkou Port Authority. It is a state-owned enterprise established by the Ministry of Communications. It was established in 2003. The investor is Yingkou City's state-owned asset management company and is managed by the Yingkou City SASAC. The company’s core holding subsidiary, Yingkou Port Co., Ltd. was listed on the Shanghai Stock Exchange in 2002. As of the end of March 18, the company’s shareholding ratio was 78.29%.

On February 12, 2018, Yingkou Port Group Co., Ltd. announced the “Announcement of Changes in the Controlling Shareholders and Actual Controllers of Yingkou Port Group Co., Ltd.”, announcing that it had completed the registration formalities for the change of the controlling shareholder for the development of port and aviation. The controlling shareholder of the company was changed from Yingkou City SASAC to port and aviation development. The actual controller was changed from SASAC of Yingkou City to SASAC of Liaoning Province.

Maturing debt is creating a crisis this year:

Yingkou Port Group has a good hole and left a bunch of debt

Yingkou Port is the second largest port in the northeastern region except Dalian Port. A golden hole has left behind a pile of bad debts. Why is it behind?

Debt is huge

Short-term loans amounted to 16.6 billion and long-term loans were 32.4 billion. The debt due within one year was also quite high, reaching 6.6 billion, and the total bond balance was 20.7 billion! From 2014 to the end of 2016, the company’s interest-bearing debt scale remained at a high level, and its proportion in total debt remained above 90%. As of the end of September 2017, the company’s interest-bearing debt was 74.31 billion yuan, accounting for 95.43% of the total debt. From the perspective of the debt maturity structure, the company’s interest-bearing debt due within the next three years accounted for 68.71%, and the debt pressure was more concentrated.

The company went on a building binge despite the slowdown in the economy:

Crazy construction, carrying huge debt

According to the 2018 rating report, since 2014, due to the large-scale investment in the construction of Bayuquan Harbor and Xianrendao Port, the funds used for the construction of terminal berths mainly come from debt financing, and the company’s liabilities have remained relatively large. Non-current liabilities were the main factors; at the end of 2014~2016 and the end of September 2017, the company's asset-liability ratio was 69.87%, 68.07%, 67.98% and 68.43%, respectively.

As was the case in 2014 when I wrote Liaoning Sounds Warning on Chinese Economy, the province is again sending a warning. Heading into 2014 it had relied on real estate investment to offset the commodities slowdown. When real estate investment slowed, the economy went with it. Once again, the province followed the national development model in recent years, relying on a surge in government and SOE fixed asset investment.

As Liaoning's economy is still suffering from slower global growth and low commodity prices, it cannot support the debt-fueled construction in recent years.

Deterioration of business conditions　

From 2014 to 2016, the company’s operating profit decreased year by year, and the loss in 2016 was mainly due to the company’s conversion of fixed assets to RMB14.864 billion under construction in 2015, which led to an increase in depreciation in 2016. In addition, the company sold shares and long-term equity investment companies. The loss resulted in a reduction in investment income. In 2016, the company’s non-operating income increased significantly and became a major supplement to the company’s total profit, mainly the government’s 1.386 billion yuan. From January to September 2017, the company’s operating profit continued to lose and continued to rely on government subsidies.

Poor management is also involved:

Good financial assets have also been stripped
In December 2017, the State-owned Assets Supervision and Administration Commission of Jiekou City approved the equity of three unlisted financial institutions held by Yingkou Port Group and its subsidiaries (10% for Shenyang Rural Commercial Bank Co., Ltd. and 10% for Dalian Rural Commercial Bank Co., Ltd. , Yingkou Rongsheng Rural Commercial Bank Co., Ltd. 14.6%) transferred to Yingkou Venture Capital Guidance Fund Co., Ltd. and Yingkou Huiying SME Sustainable Development Services Co., Ltd. The audit base date for this free transfer was December 31, 2016. The total value of the equity transferred was RMB 1.253 billion, accounting for 3.6% of the owner's equity of the Yingkougang Group's audited consolidated financial statements for the 16th year.

Yingkou has a AA+ rating:

Finally the rating company dares to conclude

The probability of a company breaching the contract is minimal! ?

Dagong International Rating Agency AA+

Update: Yingkou Port (600317) fell 9.76 percent in Wednesday trading.