2015-05-21

Sinosteel's Debt Star Collapses Into Black Hole

Caixin 2010: Billions Disappear in Sinosteel's Black Hole
Caixin 2010: Peering into Sinosteel's Financial Black Hole
Caixin 2011: Closer Look: Sinosteel President Goes, Problems Remain
Caixin 2011: Sinosteel Wallows Deep in an Australian Hole
Caixin 2014: Banks' Bad Loans Rise on Troubles in Steel Industry
Reuters 2014: China trader Sinosteel says facing financial problems but no debt crisis
This story was covered here: Sinosteel in Debt Quagmire; Steel Prices Decline
Caixin 2015: 中钢千亿债务难解 (Hard to Solve Sinosteel's ¥100 Billion Debt)

Long story short: Sinosteel has 72 subsidiaries in debt to the tune of more than ¥100 billion, including ¥75 billion owed to more than 80 domestic and foreign banks.

Google translation after the jump.

Steel Group, the debt crisis has failed to disarm the alarm. Since mid-September 2014, loans overdue steel broke, anemic mechanism Steel Group financing difficulties, the verge of bankruptcy.
  According to the new financial reporter, beginning from December 2014, the State Council, China Banking Regulatory Commission regulations allow ministerial coordination meeting held in steel debt, the Bank of China led the establishment of debt committee, on how to deal with debt problems in the steel negotiations, but because of differences over several parties Great progress the deadlocked.
  Choi new reporters also learned exclusively, according to the Authority's debt, as of December 2014, China Steel Group and owned 72 subsidiaries debt more than 1,000 billion yuan, of which financial institution debt of nearly 75 billion yuan, involving more than 80 domestic and foreign banks, as well as some of the trust, financial leasing companies.
  Over the past four months, China Steel has appointed audit related organizations, whether existing third-party group insolvency judgment, but the overall debt restructuring plan has not yet formed. "Progress Group debt restructuring is currently ruled out bankruptcy way, is doing restructuring agreement, plans to put the first half of the debt agreement signed." A source close to the China Steel Group senior insiders said.
  Caixin reporter learned from the relevant creditor row, currently the bank debt agreement is still dominated by the new-old, but if all creditors agree, need look no further. Steel and related departments want banks to eliminate debt, but was firmly opposed to the line from the Agricultural Bank of China and other creditor, the bank in 2014 sent to Steel 50 billion loan drawn directly to non-performing loans.
  Steel and banks in recent years, the game is a microcosm of the central rate of the debt crisis. Wealth of new reporter was informed credit in steel peaked in 2008 to 2010, followed by some banks began to drop, exit, bank debt was gradually reduced to the current 74 billion yuan. "When did the excessive credit." A banking source pointed out that the bank's imprudent lending caused the blind expansion of steel, but also for enterprises foreshadowed trouble now. Steel banks now rely on a steady stream of blood transfusion to maintain the operation, in turn diverted bank funds a large number of effective credit risk only after an accumulation of delay.
  Wealth of new reporter was also informed that, in addition to the Steel Group, China Eastern Airlines Group, China Power Investment Group, Hong Kong China Travel Service Group and China International Travel Group also appeared in non-performing loans in 2014 or SMLs situation, causing commercial bank's vigilance.
Debt impasse
  According to the new financial reporter, relevant institutions have been handed in late April on the debt audit report debt Committee, but not to the stage to discuss the overall program. A creditor banking sources, the audit after the debt restructuring plan contains a variety of means, including a portion of consumer debt, the latter part of the debt restructuring debt, part of the deferred interest payments, interest and other relief.
  Wealth of new correspondent was informed at the end of 2014 the Commission statistics, 74 billion of debt in the steel debt, including the Bank of China about 120 billion yuan, about 11 billion yuan of ICBC, Bank of about 90 billion yuan, the Agricultural Bank of nearly 90 billion yuan, nearly 8 billion CDB yuan, 6.5 billion yuan Export-Import Bank, China Everbright Bank nearly 40 billion yuan, 1.3 billion yuan Mukden bank. Due to the nature of the steel business, most banks do business with the steel open letters of credit are similar to credit, less collateral assets, bank debt collection repayment more difficult. In addition, foreign firms for China Steel Group had loans of about $ 2 billion, more than 4 billion yuan in steel also through a trust, financial leasing, corporate bonds and other financing.
  In recent years, financing activities in the steel, the more obvious is the bank's "disk access." In 2013 the bank did not appear columns of the front row of six major creditor. By the end of 2013, the Bank of China Steel has nearly 150 million yuan loans, Bank of nearly 12 billion yuan, the National Development Bank of nearly 10 billion yuan, the bank nearly 90 billion yuan, nearly 7.5 billion yuan, China Everbright Bank, Export-Import Bank of nearly 7 billion yuan .
  The end of September 2014, China Steel Group acknowledged that indeed "tensions facing financial difficulties, the presence of individual capital return overdue arrival of." This refers to the CDB nearly 700 million yuan of overdue loans. According to the new financial reporter who was understood to banks, policy banks start lending to its drop, then trigger other banks repaying the loan drawn, many banks in the fourth quarter of 2014 steel taken resolute measures of repaying.
  By the end of 2014, the SASAC has let banks eliminate debt demand. He was raised, so stop the losses in bank debt and Steel shares, year after year write-off, but the bank 方如农 Bank and other difficult to accept this program, only agreed to a temporary interest-free, but avoid long, how much free no agreement. "Central enterprises always, restructuring about to become a shell company, assets maneuvers look, threw the burden on banks." A big firms said.
  In the multi-party coordination, the bank made a loan extension in steel and deferred interest payment. A source told reporters that the new wealth, in order to solve problems in the steel, the SASAC had wanted to split steel restructuring to several central level, but nobody is willing to take. A senior bank and the steel business, said he had deliberately Steel filed for bankruptcy, was to stop the SAC leadership. "
  A banking source told reporters that new wealth, many Steel Group subsidiary, had previously been doing business with their local branches to close this year, the head office approval authority, unified management, "a clear problem resolutely closed."
Steel pathfinding
  October 2014, China Steel senior personnel changes occur. Xu Siwei any Sinosteel president, deputy party secretary, 刘安栋 any Steel Corporation party secretary, vice president; 辛希 music Steel Co., former general manager of Sinosteel Steel suspected of serious disciplinary problems, was the SASAC discipline inspection commission investigation.
  Personnel changes several times, and failed to save this central rate. In 2011, the SASAC Sinosteel president Huang Tianwen removed from the post; in 2013, China Steel Group executives big shake again, the SAC announced the management team of Huang Tianwen era of accountability. At the time, he dismissed the deputy general manager Li and Jiang Hong Steel shares; and Deputy General Manager of China Steel shares Liu Andong, Wang Wenjun, Shaodian Xiang was admonishing him; Sinosteel former president Jia Baojun real power changed hands.
  "I would rather sacrifice in charge of the road, you can not lie still waiting." At the end of 2014, the then difficult situation for steel, Xu Siwei annual meeting in 2013, the case statement.
  People close to the China Steel Group executives pointed out that the steel group's trade and production sector in recent years, a large loss, the urgent need for reform. Prior to the new financial reports, China Steel Group proposed a five-step approach to reform: The first is the sort of business, followed by the heart of the plate to build a good company, the third step according to the principles of streamlined and efficient mechanism to build the headquarters of the fourth step to optimize staffing, fifth further improve relevant mechanism. According to its introduction, headquartered Sinosteel has begun to reduce the functional departments were downsizing reorganization trade, iron and steel, Burden three companies merged. "Three to integrate into one, lost half." In the business sector, the China Steel Group stressed that "downsizing", the former largest trading compression scale, emphasizing upgrading the industrial structure, according to the science and technology of new materials, refractory materials, financial services do comb.
  Since February 2015, China Steel's Steel International Engineering Technology Co., Ltd. (hereinafter referred to as Sinosteel), Anhui Tianyuan Technology Co., Ltd. (hereinafter referred to gangtianyuan, 002057.SZ) has due to planning major events and planning a major asset restructuring suspension. April 21 Japan-China Steel International has announced that the matter relates to the non-public offering. Steel set by international possibilities increases. As previously reported fiscal new Sinosteel may introduce strategic investors to participate in the reorganization, restructuring side not market rumors of Minmetals.
  Sinosteel is * ST Kyrgyzstan carbon by peeling research, development, processing, production, marketing and other business carbon and graphite products, will be some 99% stake in the steel equipment Steel shares placed from the main business change integration of engineering and technical services and equipment and spare parts supply, which is the highest quality Steel Group assets. Thus, * ST Kyrgyzstan carbon to "Reaching for the Stars hat," the transition to the international steel.
  A Sinosteel International Management noted the Group's current bank credit is tight, the company's financing situation is very difficult, the actual amount available is less than 50 billion yuan. Sinosteel after restructuring and listing, and banks are talking about a single credit, because this year the new contract amount is greater than last year, the demand for project working capital is also higher than last year.
  Steel International would like to take "all the way along the" expansion of overseas business into the fast track of rapid development. Steel International Publication said it would continue to improve the layout of the international market, increase in India, Russia and Southeast Asia, Africa market efforts. South America, North America and Australia on engineering requirements, the company will also increase the layout, form of comparative advantage. A prolonged slump in the domestic metallurgical market, lower prices more projects, long duration, high capital costs, compared with "along the way" in overseas projects can enjoy the facilities of export tax rebates, and no VAT burden. More importantly, a lot of domestic bank loans to promote projects of local policy, local businesses are willing to pay higher prices to cooperate with domestic enterprises, which make Sinosteel see hope.
Steel Finance black hole
  Steel shares are Steel Group's core business, the company's debt rate up to five years more than 90%, and has increased steadily to 95%. Company loans overdue, but also from 2013 had been exposed.
  A joint-stock bank executives pointed out that the economic downturn in the short term to reverse the situation is very difficult. "Steel is essentially a business enterprise. China every economic downturn are originating from the trade issue, which also has a relationship with the industry cycle."
  Many banks believe that Sinosteel biggest problem is that after over excessive expansion of credit in the financial chain, and then superimposed steel prices fell, crazy tray financing business, the steel is already losing momentum blood. "In 2007 and 2008 the rate of expansion is too fast, with too foot lever, the industry has exposed the downside risk once." A senior steel industry analyst said.
  At that time the industry's most sensational, the Steel Group in 2008 for Australian iron ore company Midwest (Midwest Corp.) was raised over 90 billion hostile takeover. By 2011, an attempt to carry out the business of all steel stranded (see related news Articles 2011 25 "Steel Midwest Iron fallow"). Just recently, the Australian subsidiary of the steel is constantly closed iron ore mining. "Steel Investment very immature, banks are very cautious." There bankers concluded.
  A leading investment bank trade finance department official told reporters that the new wealth, China Steel Group's financing are very problematic, "is long with short-term loans." According to the disclosure, in 2009 alone the relevant departments of the steel business model into question. They found that Sinosteel will fund trade financing obtained for the construction project investment, "the source of funding the acquisition of overseas projects, funds are also used to do business." Thus, there are big firms all out in those two years the steel project.
  Minsheng Bank is also alert there. According to the new financial reporter, Minsheng Bank in 2010 - 2011 years by Metallurgical Division of Steel has a credit line of up to 9.5 billion yuan, accounting for about half of the actual exposure, much of the credit for the year, but then expire without renewal for, starting from the end of 2012 and start gradually drop. As of December 2014, Minsheng Bank to report to the CBRC data show that the size of loans has been less than 400 million yuan.
  Many bankers mentioned in the steel into too many "triangular debts", accounts receivable retrieved. In 2010, Shanxi Zhongyu of private steel enterprises steel 4 billion yuan of debt exposure, just the tip of the black steel and other enterprise funds of the iceberg. National Audit Office audit report, 2007--2009 year, the Steel Partners Group was occupied by 8.807 billion yuan of funds.
  "Huge Steel Group management system, the financial cost is extremely high, in the fluctuation of steel price is too insensitive to buy low and sell high, the downstream business of payment often difficult to go back this time." A senior banker said.
  According to the 2014 annual report disclosure Sinosteel, China Steel International and Beris Jiangsu Heavy Industry Co., Datong Coal Mine Group, Jiamusi Dongxing coal chemicals, coal-based energy company PHYLLIS letter and so have a contract dispute. "Steel almost all of China's major steel mills to have done a tray financing." Aforementioned senior bank insiders.
  This is a normal tray financing business, but this business is made a trade background void, become a business "sleight of hand tricks," the weapon. The so-called pallet business means state-owned enterprises to help traders or payment mills, timber cargo on third-party warehouse; after some time, traders paid a commission by the addition of interest expense or reimbursement of funds, the back right goods.
  This is because the identity of the central enterprises easier access to bank credit, private enterprises became "two banks", thereby obtaining private financing. In the context of constructing a false trade, private sales for big state-owned enterprises, private enterprises and state-owned enterprises with the help of low-cost financing. According to the CBRC internal data, as of the end of 2013, the national steel trade exposure to 1.3 trillion yuan, such risks are not fully exposed, thanks to state-owned enterprises to cover up huge losses. (See related news publication 2014 Section 6 " steel trade collapsing black hole ")
  A banking source said steel by now false VAT invoices to the bank financing, bank acceptance bills to its opening, and then repeated the cycle. "Steel pallets do too crazy, the steel boiler gave mortgaged." Unspoken rules of credit, bankers and steel industry professionals this industry open "tray walk account" all criticism, "said State Property Management simply does not work , private steel mills are simply unable to manage pallets and steel trade. "
Market to Go
  Iron and steel industry is still winter. Steel Association data show that as of 2015 end of the quarter, the steel industry overall loss. CISA party secretary Liu Zhenjiang on "2015 China Steel Planning Forum", said in January 2015 and medium-sized iron and steel enterprises losses, February January greater than the amount of loss, a loss of nearly 50%; the situation in March is still lack of orders, inventories.
  Steel prices cash flow increasingly stretched. According to CISA statistics, current liabilities of more than 80 member companies of the size of more than 3 trillion yuan, 1.33 trillion yuan of bank loans, including short-term bank loans of nearly 1 trillion yuan.
  In addition, the central rate of default in other areas are also being exposed, Chinese double group is also due to the heavy machinery industry downturn, the company sustained losses, capital of extreme tension, leading to the Group and its subsidiaries appear loan principal and interest are overdue commercial bills can not be scheduled payment . January 8, * ST double (601268.SH) who actually control the National Machine Group Chairman Ren Hongbin, accompanied by four rows of workers and peasants in the construction of high-level visits China double, hoping to obtain support from banks. "China is the most important double turn around ⋯⋯ National Machine Group is currently working much needed support and understanding of the banks, by the way acceptable to both sides, the Chinese two heavy financial burden down." According to ST * Double May 3 evening announcement, a total of more than 8 billion yuan of overdue amounts.
  April 21 afternoon, Baoding Tianwei Group Co., Ltd. announced that, due to the company incurring substantial losses, one could not honor the 2011 second medium-term notes (11 Tianwei MTN2, Bond Code: 1182127) interest this year, becoming the first only SOE debt default.
  According to the new financial reporter, in September 2014, just when the steel is exposed overdue loans, some banks in the interior began warning the central rate of default risk, it noted that part of the central rate of market risk and industry risk outstanding, including coal, shipping, textiles and clothing, wholesale trade, chemicals, electronics, machinery manufacturing.
  "Banks love-hate relationship of the central rate is now." A senior Bank of Communications Shanghai Branch, said, banks often "superstition" central enterprises, thereby lending excesses, but with an increased risk of default central rate, its difficult for banks to use market-oriented disposal to resolve, had to swallow when the "sexual gratification" of the consequences.
  A Shanghai Pudong Development Bank, told reporters that new sources of wealth, since last year, the bank gradually out of superstition central rate errors. "Head office requirements, branches Censoring personnel should resolutely reject the central rate customers a low-risk or no risk of misconceptions have in terms of their own operating conditions, real financing needs, repayment ability and other aspects, evaluation and decision-making credit programs." According to the disclosure, the head office requirements with a central rate for the Group of background, but deviates from the group's main areas, or the first source of repayment of the enterprise is not sufficient and should not be credit.
  Former Central Bank Deputy Governor, Agricultural Bank of China chairman Liu Shiyu now had specifically pointed out that the debt restructuring of central enterprises and other large enterprises, should be through the "Bankruptcy Law" and other legal proceedings to resolve. "Now when some very large companies in difficulty, whether it is the creditor or the enterprise itself, are counting on the government to take the lead administrative reconciliation." He believes that the government-led administrative reorganization, an agreement between the creditors, particular in China Under the system is very efficient approach. "Once the government-led restructuring, whether the debtor or creditor will form a common hope - Government to pay the price," Liu Yu pointed out that the companies will bring tax revenue to local government, to solve the employment, increase GDP, governments often choose None responsibility to carry out third-party asset injection, to make an inventory of the debt, which would lead to the abuse of government resources, brewing at greater risk.
  Liu Shiyu has worked with bankers survey found that a few state-owned enterprises and private enterprises to form a security ring, are the local government's economic mainstay, refused to audit the debt restructuring process, "if they can not use the" Bankruptcy Law "to efficiently solve these problems, you may It led the government to be very passive, banks are very passive, companies are very passive. "Liu Yu think, for a salvage value, the value of restructuring enterprises to go" Bankruptcy Law ", thereby properly handle credit and debt, to preserve productivity, enable enterprises to avoid collapse.
  How to resolve the financial institutions industry overcapacity difficult? Director Ji Zhihong financial markets the central bank wrote "My overcapacity risk and governance" that resolve excess capacity in the financial sector through mergers and acquisitions to develop financial markets and promote corporate mergers and acquisitions. Possible future acquisitions by developing convertible, convertible bonds and other equity and hybrid financing instruments, bonds and other debt financing mergers and acquisitions, credit, asset-backed securities, credit risk default swaps (CDS) and other financial tools to revitalize the industry overcapacity stock credit, credit risk dispersion overcapacity industry.
  "In particular, we should pay attention to 'the area all the way' strategy as a guide, strengthen financial support to 'go out' efforts." Ji Zhihong believes that the overseas market prospects, supporting industries require relatively low overcapacity in the industry, can be combined with overseas aid, international cooperation projects through overseas factories way evacuation capacity; for infrastructure and industrial facilities requirements, large investment scale industries, the transfer capacity of the way digestion by encouraging the industry downstream industries; for the fierce global competition, domestic production conditions have obvious advantages industry, can be expanded by way of the establishment of sales outlets in overseas export digestive capacity.

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