State-owned Bond Defaulter Owes USD$5.1 Billion to Chinese and Foreign Creditors


A state-owned automaker who defaulted on a 1 billion yuan bond in October owes many billions more to multiple creditors in China and abroad.

Huachen Automotive Group owed 33.5 billion yuan (approx. USD$5.1 billion) to 71 Chinese and foreign banks and trust companies as of last year, according to a Financial Times report citing information in a creditor document.

Huachen is a major state-owned automaker headquartered in the north-eastern city of Shenyang. The company operates under the control of the Liaoning provincial government, and its businesses include a manufacturing joint-venture with BMW via a subsidiary.

Banks that have provided loans to Huachen include big state-owned lenders Industrial and Commercial Bank of China (2 billion yuan) and China Construction Bank (642 million yuan), as well as policy bank Export-Import Bank of China (1.8 billion yuan).

Its biggest creditors were China Everbright Bank (3.314 billion yuan) and Industrial Bank Co., (2.891 billion yuan), while its largest foreign creditor was the Development Bank of Singapore (779 million yuan).

China has recently been shaken by a slew of bond defaults by major state-owned enterprises (SOE), shaking confidence in their overall creditworthiness and raising concern about the risks they pose to the Chinese financial system.

A CITIC Securities report says that since the start of the second half a total of 10 Chinese SOE’s have either defaulted on or rolled over their bonds, while the combined bond balance of these entities is 102.831 billion yuan (approx. USD$15.7 Billion).

“SOE credit risk has transformed from a hidden concern into a reality,” said the report. “A succession of risk incidents have taken place since the end of October, with the defaults of some entities in excess of forecasts triggering sizeable market volatility and widespread concern amongst investors.”

A meeting of China’s Financial Stability and Development Committee (FSDC) convened on 21 November warned of further bond defaults to come, and called for “standardisation of bond market growth.”

Gavekal Dragonomics analyst Wei He said that the defaults could have a severe impact on the asset quality of Chinese banks, given that they are often beholden to local authorities who are inclined to prop up SOE’s within their own jurisdictions.

“Gone are the days when Chinese banks could roll over troubled debt indefinitely to make their financial statements look good,” said He.

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