Update: AA+ Rated Yingkou Port Defaulted on ¥530 Million, Has ¥78.1 Billion in Debt

Last week I posted State-Owned AA+ Rated Yingkou Port Defaults on 530 Million, Has 68.7 Billion in Debt. I could find no English coverage of the story. As of today, I only find a small mention in Asia Insurance Review: At least 10 insurers involved in at-risk Yingkou Port debt investment plan. It mentions only the ¥530 million yuan default.

I was surprised about the lack of coverage given it is a AA+ rated state-owned enterprise (Dagong rates U.S. sovereign debt as BBB+). A week ago I posted in-depth research from Changjiang securities slicing and dicing the Chinese bond market and areas (industries, provinces) with increased default risk. The chart below shows the share of bonds issued below AA rating and the issuer. Private enterprises (red) and other (blue) are dwarfed by SOEs (yellow). The right hand side shows the total percentage of less than AA debt issued. There may or may not be a lot of debt with similar risk out there going by credit ratings.
Here's Dagong's (red) and China Bond Rating's *blue) rating history for Yingkou:

Last week the total debt was reported as ¥68.7 billion. The latest coverage from Sohu says ¥78.1 billion. The headline says: the creditor lineup is quite luxurious!

Sohu: 781亿债务!AA+省属国企营口港违约,债权人阵容相当豪华
According to Yingkou Port’s own statement, in the process of Liaoning port integration, the company’s financing activities have all but ceased, and the temporary funds are tight. Therefore, it is hoped that Everbright’s reorganization plan will be adjusted.

According to relevant media reports, Everbright's debt plan for Everbright has 14 beneficiaries, of which 13 are insurance companies and a total investment of 1.7 billion yuan; the other is Haikou Branch of China Everbright Bank Co., Ltd. with an investment of 300 million yuan.

The 13 insurance institutions were China Life Insurance (subscribing 450 million yuan), China Ping An Life Insurance (subscribing 240 million yuan), China Pingan Property & Casualty Insurance (subscribing 0.6 billion yuan), Xinhua Life Insurance (subscribing 200 million yuan) and Taikang Life Insurance (subscribing) 100 million yuan), Indochina and Life Insurance (subscribing 150 million yuan), Indochina and P&C Insurance (subscribing to 50 million yuan), United States-China United Metropolitan Government (subscribing to 50 million yuan), and ICBC Ansheng Life Insurance (subscription of 100 million yuan) ), CCB Life Insurance (subscription RMB 50 million), Taiping Life Insurance (subscription RMB 100 million), Huatai Property Insurance (subscription RMB 50 million), and Huatai Life Insurance (subscription RMB 100 million) .
Such a luxurious lineup can be said to cover more than half of the insurance circle. The reason that the original insurance fund purchased this debt investment plan was in addition to the AA+ rating of Yingkou Port, another very important factor is that the Bank of China has undertaken irrevocable guarantees, and Chinese banks is exposed. Naturally, investors are not worried.
The resolution of Yingkou Port's debt restructuring could set the model for other defaulted Liaoning firms:
“Yingkou Port is not without money. It involves an overall debt restructuring. From the perspective of publicly disclosed information, it is the immediate repayment of bonds and the reorganization of debt for non-bonds,” said the person in charge of the insurance industry. The Economic Observer reporter said that in this process, Everbright's debt plan was allocated to non-bond debt , but in the eyes of the beneficiaries of the Everbright asset management and credit plan, the investment plan should not be divided according to the nature of the business. Included in the debt-to-equity swap.

The reason is very clear. It means that Yingkou Port intends to redeem all standardized bonds. However, such non-standard products as Everbright's debt investment plan are intended to convert debt into shares.

Wrote here, readers and friends, did you think of Liaoning Northeast Steel, open bondholders meeting, disregard the opposition of many investors, forced the implementation of debt-to-equity swaps, or GKX Proposes a line of three will suspend all LN Regional bond approvals.

The same story may be staged again in Liaoning's land.
The Sohu article also discusses another worrying aspect of the Yingkou default: good assets were stripped.
This is not, good financial assets are also being stripped : In December 2017, the State-owned Assets Supervision and Administration Commission of the city of Shangkou City approved the equity of three unlisted financial institutions held by Yingkou Port Group and its subsidiaries (Shenyang Rural Commercial Bank Co., Ltd. 10 %, 10% of Dalian Rural Commercial Bank Co., Ltd., and 14.6% of Yingkou Rongsheng Rural Commercial Bank Co., Ltd.) were 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.

We will wait and see how the development of Yingkou Port continues.

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