Steel Slowdown Hits Hidili

Not a week ago, I wrote Steel Industry May Finally Be Facing the End; Systemic Financial Crisis Looming?. No daisy chains of mutual credit guarantees have gone off yet, but a steel realted firm has taken a hit, Hidili Industry (1393), which produces coke. This company has seen its share of trouble as reflected in the stock price. Bankruptcy in the coal industry isn't a shocker given what has been happening in the global economy:

Bloomberg: Hidili Says Not in Position to Pay Bonds as China Defaults Mount
Hidili Industry International Development Ltd. is not in a position to repay $190.6 million of principal and interest due Nov. 4. on its 8.625 percent notes, it said in a statement Friday. The mining company based in the southwest province of Sichuan has defaulted on some of its 6 billion yuan ($947 million) of loans, it said. Hidili has hired UBS Group AG to advise on bond restructuring, according to the filing.

AAStocks: HIDILI INDUSTRY (01393.HK) Sees Cross-Default Risk
HIDILI INDUSTRY (01393.HK) announced an indirect PRC subsidiary of the company has not repaid a short-term unsecured loan from a PRC bank which fell due in June 2015 and has not paid the accrued interest so far. As of 30 September 2015, the principal amount outstanding under the loan was approximately RMB290 million. The company has been in discussions with the lender regarding a waiver of the breach and the renewal or extension of the loan. Due to the processing time required to pledge certain mining asset to the lender, the renewal or extension of the loan has not been completed. The company has received indication from the lender that a written waiver will be issued shortly.

The foregoing constitutes an event of default under the loan agreement. Moreover, such breach constitutes events of default under certain of the group’s onshore loan facilities that contain cross-default provisions.

Hidili is in Sichuan, a province that doesn't need a match tossed into its powder keg of debt.

From 1 year ago: Textbook Credit Implosion Underway in Sichuan Province
At end of December 2013, there were nearly 5,000 of these financial firms, an increase of roughly 4000 from June of the same year! Sichuan's provincial government counted 509 firms involved in credit guarantees at the end of 2013, with a ¥233.8 billion guarantee balance and 730,000 households served, making Sichuan province the second largest market in the country. Central bank data from the end of June 2014 counted 326 small lending companies in Sichuan, ninth in China, with ¥59.7 billion in loans, fourth in China.

41.4% of western Chinese SMEs need credit and 57.2% of those credit needs are met with private fundraising (shadow banking). Average interest rates are 19.1%, well above the 9.7% annual rate for bank credit. Since they have no credit guarantee or collateral, 72.1% of small businesses are forced to use private fundraising. In Chengdu, there are investment products on the market today offering 15% to 18% returns, well above the 7% offered by bank trusts and WMPs.

Are you ready for the punchline? One insider estimates that 80% of this private credit flowed into real estate. Thanks to the rapid growth of the real estate industry, some developers were (successfully) paying 100% annualized interest rates and even the common people were spoiled, with investors refusing to even look at wealth product yielding under 20%.

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