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Crisis at China's JPMorgan Wannabe Deepens on Bond Defaults

From Bloomberg, April 18, 2019, 9:31 PM EDT

  • CMIG cross defaults triggered on $800 million of dollar bonds

    • A debt crisis at one of China's most well-known private conglomerates entered a new stage Thursday, with the company saying cross-default clauses had been triggered on dollar bonds worth $800 million.

    China Minsheng Investment Group Corp.has appointed Kirkland & Ellis as legal adviser, according to a Hong Kong stock exchange filing, which also noted that banks have set up a creditor's committee to try to stabilize the company. The cross default comes after CMIG's problems spread to its affiliate Yida China Holdings Ltd., making some of the developer's debt immediately payable, and causing a chain reaction back to the parent company's own securities.

    CMIG spooked investors with a late bond repayment earlier this year, joining other sprawling Chinese conglomerates such as HNA Group Co. in struggling to repay debt after a spending spree. Since its establishment in 2014, CMIG has spent more than $4 billion on investments and amassed about $35 billion of liabilities as of September.

    "CMIG's debt crisis will worsen as creditors will seek to freeze more assets if it defaults on onshore publicly offered notes," said Chen Su, a bond portfolio manager at Qingdao Rural Commercial Bank Co. The problems won't be resolved unless CMIG finds more willing investors, he said.

    CMIG's dollar bonds due in August traded at around 40 cents on the dollar Thursday, according to traders.

    Click here to read a QuickTake about CMIG

    CMIG said in the filing Thursday that it has also reached an agreement with holders of a privately placed note to extend the payment date to April 19 from April 8.

    Yida China's credit rating was cut to CCC from CCC+ at S&P Global Ratings late Thursday, which said the company may face a liquidity crunch in the next 12 months, given the overhang of debt repayable on demand.

    Signs of corporate stress appear to be spreading, despite China's stabilizing economy. Citic Guoan Group Co., a state-linked conglomerate, was downgraded on Wednesday after fresh asset seizures, helping trigger a plunge in its listed unit's shares. Tewoo Group earlier this month sought support from lenders to extend its debt amid a credit squeeze. Bonds from at least 44 Chinese companies totaling $43.7 billion face repayment pressure, according to company and ratings firm statements compiled by Bloomberg.

    Market Impact

    CMIG's defaults may harm investor sentiment toward future offerings from privately-held and unrated issuers, according to Patrick Liu, chief executive officer of Admiralty Harbour Capital Ltd., a Hong Kong-based debt specialist firm. Still, given the relatively small amount of CMIG's outstanding dollar bonds, with some backed by letters of credit, there will be limited impact on the offshore market, he said.

    CMIG is the brainchild of Dong Wenbiao, the former chairman of China's largest non-state bank who's known as the "godfather'' of the nation's private sector. Billing the company as a Chinese version of JPMorgan Chase & Co., Dong convinced 59 non-state companies to join forces as the company's founding shareholders. The company's funding eventually dried up as its investments struggled and shadow banks pulled back because of tighter regulation and slowing economic growth.

    "Solving CMIG's debt problem will hinge on its onshore creditor committee, and this may not be fully addressed soon," said Shen Chen, a partner at Shanghai Maoliang Investment Management. There appears to be little synergy between the company's various holdings, and finding investors willing to pay for its assets at a good price while taking on a huge debt load will be challenging, Shen said.

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