More on Chinese SOE Defaults

Caixin: Cash-Strapped Mining SOE Sweetens Repayment Offer to Avoid More Defaults

Yongcheng Coal told bondholders on Sunday that it can repay 50% of the principal if they accept a 270-day extension for paying back the rest, sources close to the matter told Caixin. The bond was due on Nov. 10.

Over the past few days, the debt-ridden SOE has gradually raised its extension offer, the sources said. In its first proposal, it asked for the 270-day delay without immediate repayment on any of the principal. After that was rejected, it offered to repay 5% in exchange for the delay, then 30%. The offer now stands at 50%, or 500 million yuan, the sources said.

Credit guarantees are still a problem:

If Yongcheng Coal and its creditors don’t reach an agreement by Tuesday, cross defaults will be triggered on 15 billion yuan of Yongcheng Coal bonds and 11.5 billion yuan of debt issued by its parent company, Henan Energy and Chemical Industry Group Co. Ltd., as it would activate a cross-protection clause in the bond prospectus. Any proposal for an extension requires unanimous approval from bondholders.

Way back in 2014, there was an entire city worried about a single default taking down the whole economy: Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave. That China is allowing some defaults indicates the government isn't worried about systemic risk. If a commodities boom cycle is underway, coal producers will see rising cash flow that alleviates credit risk. The main risk for China and the world is that all the assumed inflation doesn't arrive.