News / Asia

China Defaults Mount Among Inter-company Loans

Reuters
Chinese companies that have lent money to other companies are facing a potential wave of defaults, with several listed firms already reporting missed loan repayments.
 
Shipbuilder Sainty Marine on Tuesday became the latest listed firm to report that it had failed to receive principal and interest repayments on a 900 million yuan ($144.7  million) loan to a property developer.
 
The same day, Qiaqia Food Co announced that it would launch a lawsuit against another food producer for failing to pay interest on a 40 million yuan ($6.4 million) loan.
 
Chinese companies granted a net 2.55 trillion yuan ($411 billion) in so-called entrusted loans in 2013, nearly double the 1.28 trillion yuan total in 2012, making them the second-biggest source of domestic credit behind bank loans, according to Reuters' calculations based on published central bank data.
 
Entrusted loans require banks to serve as an intermediary, but a company serves as the ultimate lender and records the loan asset on its balance sheet.
 
“Companies offering entrusted loans typically want to lend while bypassing official restrictions for credit, such as lending quotas,” said Zhang Weigang, head of investment at Shanghai Securities. “That means they typically lend to risky industries such as property, solar panel manufacturing and non-ferrous metals.”
 
Entrusted loans are just one of several channels through which non-financial firms offer credit to one another, Zhang said. Other methods include corporate discounting of bank acceptance bills, as well as corporate purchases of trust products, which are usually backed by high-interest corporate loans.
 
Solar black spot
 
The recent string of defaults was first reported by 21st Century Business Herald, a Chinese newspaper.
 
Sainty Marine's potential loss came on an entrusted loan extended to Nanjing Fudi Real Estate Development Co in late 2012 with a maturity of 18 months, according to the lender's filing. The developer missed a required principal and interest payment worth 1.05 billion yuan, implying an annual interest rate of more than 11 percent.
 
Real estate developers in smaller Chinese cities nationwide are struggling with oversupply, leading to stagnant or falling prices.
 
The boss of Nanjing Fudi ran away in June, and the company's main development project remains unfinished, with the construction site sealed off behind a brick wall, the official Shanghai Securities News reported on Tuesday. The company couldn't be reached for comment.
 
At least four other companies have reported failure to receive interest or principal payments on entrusted loans worth 224 million yuan since February, according to exchange filings.
 
Hubei Yihua Chemical Industry Co and Ningbo Bird Co Ltd, which produces mobile phones, are also holding unpaid loans to real estate developers.
 
Solar equipment-makers Baoding Tianwei Baobian Electric Co Ltd and Sichuan Chuantou Energy Co failed to receive payments due on entrusted loans to their own subsidiaries, according to their stock exchange filings.
 
China's struggling solar sector produced China's first-ever domestic bond default last month when Shanghai Chaori Solar Energy Science and Technology Co Ltd missed an interest payment.
 
Tianwei Baobian itself has a bond interest payment due in July. That bond is currently trading at a nearly 18 percent discount to par value, indicating that investors are concerned about default risk.
 
While risk is mounting, there are no signs of listed companies losing enthusiasm for offering entrusted loans. Just this week, Lingyun Industrial Corp Ltd, Atlantic China Welding Consumables Inc and Tianjin Songjiang Co Ltd all announced new entrusted loans.

You May Like

Karzai's Legacy: Missed Opportunities?

Afghanistan's president leaves behind a much different nation than the one he inherited, yet his legacy from 13 years in power is getting mixed reviews More

US Urges Restraint in Hong Kong Protests

Protesters angered by Beijing's decision to only approve candidates that it sanctions for Hong Kong's leadership elections in 2017 More

Archive of Forgotten UCLA Speeches Offers Snapshot of History

Recordings of prominent voices in social change, politics, science and literature from 1960s, early 1970s now available on YouTube More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Treasure Hunters Seek 'Hidden Treasure' in Central Kenyai
X
Gabe Joselow
September 29, 2014 6:20 PM
Could a cave in a small village in central Kenya be the site of buried treasure? A rumor of riches, left behind by colonialists, has some residents dreaming of wealth, while others see it as a dangerous hoax. VOA's Gabe Joselow has the story.
Video

Video Treasure Hunters Seek 'Hidden Treasure' in Central Kenya

Could a cave in a small village in central Kenya be the site of buried treasure? A rumor of riches, left behind by colonialists, has some residents dreaming of wealth, while others see it as a dangerous hoax. VOA's Gabe Joselow has the story.
Video

Video Iran's Rouhani Skeptical on Syria Strikes

Iranian President Hassan Rouhani expressed skepticism Friday that U.S.-led airstrikes in Iraq and Syria could crush Islamic State militants. From New York, VOA’s Margaret Besheer reports the president was also hopeful that questions about Iran’s nuclear program could be resolved soon.
Video

Video US House Speaker: Congress Should Debate Authorization Against IS

As wave after wave of U.S. airstrikes target Islamic State militants, the speaker of the Republican-controlled House of Representatives says he would be willing to call Congress back into session to debate a formal, broad authorization for the use of military force. VOA’s Michael Bowman reports from Washington, where legislators left town 10 days ago for a seven-week recess.
Video

Video Ebola Patients Find No Treatment at Sierra Leone Holding Center

At a holding facility in Makeni, central Sierra Leone, dozens of sick people sit on the floor in an empty university building. They wait in filthy conditions. It's a 16-hour drive by ambulance to Kailahun Ebola treatment center. Adam Bailes was there and reports on what he says are some of the worst situations he has seen since the beginning of this Ebola outbreak. And he says it appears case numbers may already be far worse than authorities acknowledge.
Video

Video Identifying Bodies Found in Texas Border Region

Thousands of immigrants have died after crossing the border from Mexico into remote areas of the southwestern United States in recent years. Local officials in south Texas alone have found hundreds of unidentified bodies and buried them in mass graves in local cemeteries. Now an anthropologist and her students at Baylor University have been exhuming bodies and looking for clues to identify them. VOA’s Greg Flakus has more from Waco, Texas.
Video

Video Ebola Robs Liberians of Chance to Say Good-Bye to Loved Ones

In Liberia, where Ebola has killed more than 1,500 people, authorities have worked hard to convince people to allow specialized burial teams to take away dead bodies. But these safety measures, while necessary, make it hard for people to say good bye to their loved ones. VOA's Anne Look reports on the tragedy from Liberia.
Video

Video Reconstruction? What Reconstruction? Life After War in Gaza

It’s been a month since Israel and the Palestinians agreed to a ceasefire to end 52 days of an air and tank war that left 60,000 homes in Gaza damaged or destroyed and 110,000 homeless. Sharon Behn reports that lack of reconstruction is leading to despair.
Video

Video US, Saudi Arabia and UAE Hit Islamic State's Oil Revenue

The United States, Saudi Arabia and the United Arab Emirates have bombed oil facilities operated by Islamic State militants in Syria. It was a truly collaborative effort, with the two Arab countries dropping the majority of the bombs. The 12 refineries targeted were estimated to generate as much as $2 million per day for the terrorist group. VOA Pentagon correspondent Carla Babb has the story.
Video

Video Russia's Food Sanctions Raise Price Worries, Hopes for Domestic Production

Russia retaliated against Western sanctions imposed for its actions in Ukraine by halting food imports from the West. The temporary import ban on food from Australia, the European Union, Norway and North America has Russian consumers concerned that they could face a sharp increase in food prices. But in an ironic twist, the restrictions aimed at the Kremlin have made Russia's domestic food producers hopeful this can boost their business. VOA's Daniel Schearf reports from Moscow.
Video

Video Washington to Pyongyang: 'Shut This Evil System Down'

U.S. Secretary of State John Kerry is calling on North Korea to shut down prison camps and other human rights abuses following a United Nations Commission of Inquiry into "widespread and systematic human rights violations." VOA State Department Correspondent Scott Stearns reports from the United Nations.
Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.

AppleAndroid