Qinghai Provincial Fails to Pay Interest on Dollar Bonds

A company linked to local governments in Qinghai province failed to make a coupon payment last week.

Bloomberg: Qinghai Provincial Misses Coupon Payment on 2020 Dollar Bond

Qinghai Provincial Investment Group Co. has again missed a coupon payment on a dollar bond, a sign that a local government-led debt restructuring has yet to ease finances at the Chinese state-backed aluminum producer.

The company has yet to wire funds to pay a coupon that came due Thursday on a $300 million 2020 note, according to a person familiar with the matter. It is in talks with financial institutions for funds to make a delayed payment, said the person who is not authorized to speak publicly and asked not to be identified. Calls to the company’s office responsible for securities information disclosure went unanswered.

财新: 青海省投美元债利息仍未偿付 债务危机何时休？

The principal of the three-year US dollar debt issued in 2017 is 300 million US dollars, with a coupon rate of 7.25%. The lead underwriters are Guangyin International and DBS Bank. On August 22, the interest payable on this bond was US$ 10.875 million overdue. The next day, it was reported in the media that Qinghai Investment Company claimed that it was ready to make the payment on the same day, but so far, Qinghai Investment Company has not made the payment.

According to Caixin reporter's understanding, at present, some funds invested by Qinghai Province to pay interest on US dollar debt are still not in place, "waiting for the government to give money". However, the person in charge of the debt problem of Qinghai Investment Company stressed to Caixin reporter that the overdue interest was due to the cash flow problem of the enterprise and had nothing to do with the provincial government.

Some people close to Qinghai provincial government told Caixin reporter that it is very difficult for the provincial government to directly contribute to the debts of enterprises, and it is necessary to go through procedures such as auditing and approval. Now the Qinghai provincial government and the presidium of the debt Committee are meeting to coordinate and improve the original debt restructuring plan. As for the US dollar debt that has already been defaulted, the Qinghai provincial government is also urging Qinghai to put forward a quick solution.

This is the second time this US dollar debt has defaulted. On February 22 of this year, Qinghai Investment Company failed to pay US$ 10.875 million in interest on the US dollar debt that had been paid for half a year. Since there is no grace period for the debt, bond market investors believe that the two overdue interest payments have already constituted actual defaults. Qinghai Investment Company became the first state-owned enterprise to default on overseas bonds since Guangdong International Trust Company Limited in 1998.

Established in 1993, Qinghai Investment Group Company is one of the two major wholly state-owned companies under the SASAC of Qinghai Province. Its main businesses are electrolytic aluminum production and sales, aluminum product processing, power sales and coal mining. It has 23 wholly-owned and controlled subsidiaries and 3 shareholding companies, including listed company Jin Rui Mining. The largest shareholder is the Qinghai provincial SASAC, which holds 58.4% of the shares and is the actual controller. Western Mining, the second largest shareholder, holds 20.36% of the shares. The actual controller of the latter is also the Qinghai SASAC.

In short, it's a leveraged business exposed to industries hit hard by the slowing economy.