Zombie Mayhem in Tianjin

Resolving zombie debt has hit a roadblock: banks, governments and executives all have different ideas about how to solve the problem. The local government wants extend and pretend for now.

Caixin: Intense Jostling over an Indebted Steelmaker
A creditors committee formed in March by the government of Tianjin, which owns Bohai, drafted a restructuring plan. However, a person close to the government's State-owned Asset Supervision and Administration Commission (SASAC) said that progress toward a settlement has been stymied by concerns raised by bankers.

Wary bankers may be questioning the committee's proposal to grant Bohai loan extensions and cut interest rates on existing debt by 10 percent. Separately, some bankers have asked the government to allow banks to sell land that Bohai used as collateral and use the proceeds to pay down debt. But officials have floated a separate plan that clashes with the bankers' proposal, a bank source said, on the grounds that Bohai apparently lacks clear title to some collateralized land.

...The government "has asked banks to continue lending" to Bohai "and the government will pay the interest," said a source at a Tianjin branch of a major state-run bank. In addition, the central bank has offered at least some financial support to banks.

Another option the government is considering, the source said, is a debt-for-equity swap program. People close to the creditor committee determined that the steelmaker's assets were worth about 290 billion yuan.
The company, which borrowed heavily to expand on the back of a government stimulus program following the 2008 global financial crisis, now owes "an astronomical" amount, a bank source said.
Subsidiary Tianjin Steel sold its workers bad debt:
Tianjin Iron & Steel's liabilities rose to 60 billion yuan early this year from 32.8 billion yuan at the end of 2014, the reports said.

The subsidiary has apparently left banks in the lurch. A person close to the company said that "Tianjin Iron & Steel has been unable to pay banks the interest (on its loans) since 2011."

Company employees have also felt the heat. Several bank sources said Tianjin Iron & Steel raised about 3 billion yuan by selling a high-yielding trust product to its workers through a firm called Northern International Trust Co., but ever since has had trouble repaying them.

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