Dongbei Steel Defaults, Bohai Steel Workout

Bloomberg: Steelmaker Becomes Latest Chinese Company to Miss Bond Payment
A state-owned Chinese steelmaker failed to make a 852 million yuan ($131 million) bond payment and expressed uncertainty about meeting a larger bill next week as the slowing economy weighs on debt-laden producers.
Dongbei Special Steel Group Co., based in the northeastern city of Dalian, said it failed to repay the sum of interest and principal due Monday, according to a statement posted on the Chinamoney website. The company said in a separate statement that it also might not be able to repay 1 billion yuan due April 3 on a 90-day bill because of tight liquidity.

...Dongbei Special Steel’s missed payment comes just four days after the company disclosed that its former chairman, Yang Hua, was found dead by hanging at his home. The company said the death was under investigation by the relevant authority.

Other Chinese steelmakers are also facing rising debt pressures. The northern city of Tianjin plans to set up a committee of creditors to help Bohai Steel Group Co. “get out of trouble,” Caixin reported March 18.
Earlier: Dongbei Steel 800M In Bonds Due, CEO Commits Suicide

As for Bohai Steel: China’s Steel Sector Struggles to Service its Debts
Bohai Steel Group, a steelmaker based in Tianjin northeast China, may be unable to make full repayment on $29.61 billion (192 billion RMB) of debt, according to the online financial magazine Caixin.

The city government of Tianjin, which owns the firm, has set up a committee of creditors to help resolve the problem, including the Bank of Beijing Co. Ltd. and 105 other financial institutions, including several trust companies. Trust companies are part of China’s shadow banking sector and Caixin is quoted as saying payments due on some of the related trust products may have already been affected.

Bohai is likely the tip of the iceberg.
Steel producers, such as the 18th largest in the world Bohai, will receive government aid to avoid economic contagion and mass unemployment. Although they did not receive aid, it's worth recalling the earlier steel trading debts which blew up and then clogged the courts years later.

From 2014: Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee
In 2013, banks had lent about ¥200 billion to the steel trading industry. About ¥70 billion of it is in default, another big chunk of it is not due until next year, but is expected to default.

Many banks lent to dealers who have relationships with the steel mills. If the dealer can't sell the product, many mills agree to buy it back, thus the banks are going after the mills. This spreads the credit risk from the dealers right to the top of the steel industry. Already there are rumors of private steel mills going bankrupt......

There's yet more. A lot of steel trading firms did not use loans for steel trading. They used 10-20% of proceeds to make high interest loans, another big chunk was used to speculate in real estate and land. This diversion of loan proceeds is common, in fact these steel trading firms have become empty shells, simply a financing platform. One business is steel trading, the other is finance.
It is not surprising to hear of 106 financial institutions coming together to deal with Bohai steel, and that number doesn't include firms with secondary and tertiary exposure in case of a disorderly default. A trust or credit guarantee firms with too much Bohai exposure could set off its own daisy chain of defaults.

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