Sinosteel in Debt Quagmire; Steel Prices Decline

Chinese media is buzzing about a possible bailout for Sinosteel as the firm joins a long list of steel makers that have shut or gone bankrupt due to mounting debts. According to the Chinese report, Sinosteel is overdue on a ¥690 million debt.

China trader Sinosteel says facing financial problems but no debt crisis
Chinese state metals trader Sinosteel Corp is not about to undergo a restructuring as a result of mounting debt, a company official said on Tuesday, denying domestic media reports.

China's biggest state-owned steel trader earlier told financial magazine Caixin that it was facing financial problems as a result of unpaid bills from customers, but it denied rumours that it is struggling under the weight of overdue loans amounting to 10 billion yuan ($1.63 billion).
The general rule with rumors is that they should be discounted until they are officially denied.

The Reuters article goes on to say a crackdown in lending following the Qingdao port scandal has hurt the industry, but steel trading actually collapsed more than a year earlier. The story this year was the exploding number of court cases. Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee. If the banks continued lending into 2014, then we can look forward to bigger losses and court cases stretching into 2016.

The outlook for steel is not good, and its worse for miners than have been optimistic about China's demand:
Chinese steel man says production won't reach billion tonnes predicted by big miners
The big miners have long predicted that China's steel industry will peak at around 1 billion tonnes per year of iron ore, but Mr Li said it was more likely to peak around 870 million tonnes.
"Over the next 10 years, according to our studies, China's steel production can be over 800 million tonnes for a long time, but it cannot go over 900 million tonnes," he said at the International Mining and Resource Conference in Melbourne on Monday.

From the Chinese article (Google translated below) we learn Sinsosteel's debt crisis began in June when it was unable to repay a bank loan. The loan isn't completely in default: Sinosteel has repaid part of the loan, but several hundred million remains unpaid. The cause of the problem is placed on the Shanxi Haixin Iron and Steel Group bankruptcy earlier this year, as well as Sinosteel's radical debt fueled expansion in 2011.
This post Second Generation Wealthy Meet Their Waterloo has a graphic showing the massive overproduction of steel in China, where profits sank from the equivalent value of an iPhone to that of a popsicle.

According to CRBC data, there is ¥690 million overdue. Sinosteel has ¥18.7 billion outstanding on ¥25 billion credit lines from eight major banks. The optimists point out this is a small overdue debt relative to total debt. Of course banks are now restricting and shrinking those lines of credit......

This news hasn't shaken the steel sector; shares of public companies are broadly higher today.

Finally, today China released price data from September 11 through 20. Steel prices were down roughly 2% from the prior 10 day period. Since the start of the year, rolled steel is down 16%, and since the first 10 days of August, it is down 7%. 流通领域重要生产资料市场价格变动情况(2014年9月11-20日)

中钢6.9亿贷款逾期引债务风波 国务院没出面干预

"Steel tens of billions of loans overdue comprehensive" stories, plus the "second approach is not bankrupt than expected," the broker judged, recently caused an uproar in the market.

Yesterday, the "First Financial Daily" reporter learned from informed sources exclusive, and on market rumors of "tens of billions of overdue principal and interest," different rumors, as of the end of July, China Steel Corporation (hereinafter referred to as "China Steel Group") The amount of loans overdue for 690 million yuan.

As for the printing of rumors, "the State Department involved in mediation, and to inject 20 billion," saying that a person close to the Steel Group, told this reporter, said: "totally unwarranted, there is no involvement of the State Council, the bank did not debt relief, the Central Steel their solution to the current problems. "

Although the loan Sinosteel did not "fully overdue", and it is still in normal operation, but this storm is still to make this giant central enterprises in the industry downturn faltering pace of background exposed.

Overdue debt crisis

Recalling the entire event, loans overdue "scourge" began in June. Steel Group was in a state-owned bank's loan maturity, the bank is not currently rumored ICBC or cross the line.

Because by the Shanxi Haixin Iron debt crisis dragged down the fermentation, and sequelae influence of radical expansion in 2011 left Sinosteel liquidity difficulties encountered in years, did not this time and in full on state-owned bank loans also.

However, in the case in June and Steel Group has not speculation so bad. Newspaper reporters from two informed sources at the cross verify the maturity of loans in state-owned banks, China Steel Group is also the majority, but it does have several hundred million overdue.

According to a banking source quoted the China Banking Regulatory Commission, said internal data as of the end of July, China Steel Group's Steel Co., Ltd. (hereinafter referred to as "China Steel shares") occurred 690 million of non-performing loans, the loan balance at the time the shares of Steel 18.7 billion, eight banks to give its line of credit is 25.4 billion yuan.

Bank to provide the above information shows that Steel Group provides guarantees for bank loans in steel shares, while the shares of 690 million in loans overdue Steel on Steel Group naturally became overdue debts, which led to Steel Group debt crisis.

"The fact is that 690 million of overdue, rather than the rumors of tens of billions of principal and interest overdue." Aforementioned source also told this reporter.

September 23, in the face of market rumors Steel Group responded to recognize the "surface tension of funds."

But dramatically, the original number of overdue loans is not big, but because the bank frayed nerves, developed into a debt crisis.

According to the "First Financial Daily" reporter, after which face liquidity challenges and Steel Group, which has chosen to communicate with the rest of the credit of the bank and requested support, which may include giving a reasonable extension. Sinosteel may be due to "confess" the fact that several hundred million loan overdue, but there are quite a number of banks in accordance with the provisions of the general risk control industry, the Steel Group's loans included in the "special mention."

"Since the loan went into the 'special mention', some banks began to shrink the appropriate line of credit, some banks refused the renewal requirements of steel." Another insider told this reporter.

According to the insider analysis, in fact, the bank did wrong from the individual point of view, as a self-financing of listed companies, to manage risk is to protect the profits and responsible to shareholders. But the complexity of the problem is that, for the already tense capital side Steel Group, Bank of subsequent reaction but to make small storm turned into a money chain crisis, which would encourage more bank lending problems.

Since then, Sinosteel request to the relevant departments to coordinate, was able to reverse the situation. "Later, authorities began the coordination of the steel debt problems, banks now are basically adopt a cooperative attitude." This name Informed sources told this reporter that the market without undue panic, "Steel is still operating normally, and did not go to the edge of bankruptcy. "

Capacity expansion legacy

Under the loan overdue rumors fermentation, yesterday there was news that the State Department has come forward to intervene and Steel Group 20 billion emergency funding.

However, according to a person familiar with the opening of the newspaper reporters, said: "The State Council has not come forward, and no rumors of a 20 billion capital injection, is currently require steel themselves to solve the debt problem, but the bank also did not like the rumors said exemption Steel debt. "

"There have been several financing options, but not specifically identified, confirmed that the transfer of assets in the steel has not yet considered, let alone bankruptcy." Opening the source said.

Iron and steel industry analysts said the reporter, since 2008, China Steel Group has formed a rapid expansion of higher debt, plus the risk of steel trade business and its own operating imprudent, even though the currently still operating, But the negative impact caused by this storm to bring its ongoing reform program still can not be underestimated.

He also said that the overall steel prices difficult, perhaps the debt crisis is again Forced Steel Group restructuring an opportunity for reform.

Currently, banks and insiders Steel Group are holding their earnings outlook cautious: many losses of the business case is difficult to solve in the short term, but also because of the rapid expansion of the early lead in the Steel Group's debt ratio is much higher than average.

"Although after the coaching change, the steel has begun to thin, but not short day can be effective, but now the whole steel industry are in a downturn, we are also obvious." Close above Sinosteel who said the reporter.

Publicly available data show that as of the end of 2013, the Group's total assets of 110.1 billion yuan in steel, total liabilities of 103.3 billion yuan, and liabilities was 93.87%; owner's equity of only 6.75 billion yuan, undistributed profits of -109.93 billion, operating loss of 1.595 billion yuan of profits.

Despite the improved performance in 2013 compared to 2012, but operating profit continued to make losses and liquidity pressure Sinosteel slimming process is extremely painful.

Above the steel industry analyst, said the reporter, China Steel Group's current predicament is "house seemingly endless rain, the ship starts late and had met with the wind, the plight originally triggered by the rapid expansion of business early enough steel to endure, and this Under the case of steel trade has suffered a crisis and sluggish steel market. "

Overcapacity in the industry with many companies like Steel Group in response to the financial crisis, resorted to the "4000000000000" go crazy after the capacity expansion of the road. There are management subsidiary of Sinosteel who told reporters that among subsidiaries Steel Group, the business overlap uncommon, their member companies to make a living, "do what you do, what to do to make money to do what . "

But after doing a large-scale, China Steel Group began struggling with overcapacity and other industries predicament. According to earlier media reports, China Steel Group is now the most serious is the loss of steel companies charge, the loss is mainly due to high inventories and stock prices have fallen.

To make matters worse, due to the imbalance of supply and demand, domestic iron ore and steel market weakness has long been since the beginning, especially since mid-July, iron ore and steel prices have entered a new round of downward period. Compression steel production, capital chain tension and import surge, leading iron ore port stocks hovering.

At the same time, one in business contact with bankers Steel Group, told reporters that, on the one hand Steel (members) to small and medium steel mills, steel trading companies have done a lot, "tray" business, not back to be a lot of money, "the current outbreak of the country's steel industry are poor, small and medium steel mills closed one by one, do not form the whole industry chain growth, as the steel industry, steel service providers will be trapped here," on the other hand "There are some projects in the steel overseas at a loss, and some have not been started."

Those quoted above bank's internal data CBRC said the reporter, Sinosteel numerous amount of external guarantees provided by the end of July, external guarantees (mainly for its subsidiaries) guarantees the amount of nearly 60 million, of which 80% is provided Steel shares to guarantee, but it is the entity Steel shares 690,000,000 units overdue.

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