The Financial Times reports that international bondholders are seeking to freeze the overseas assets of mainland China’s semiconductor national team Tsinghua Ziguang Group, which is owed tens of millions of dollars in debt, in the hope of preventing Tsinghua Ziguang from selling its overseas assets to pay off its debts at Home.
Tsinghua Ziguang Group defaulted on its domestic bond issue in November last year, with a size of 1.3 billion yuan (about NT$5.6 billion at the Time), triggering market fears that overseas bonds worth about $2.4 billion would default along with it.
The state-backed Tsinghua Ziguang Group is at the center of Communist Party President Xi Jinping‘s push to achieve self-sufficiency in semiconductor production. As tensions between the U.S. and China have increased, the U.S. has restricted the ability of land-based companies to obtain foreign-produced chips. But now Tsinghua Ziguang’s debt problems could lead to the implication of a large number of China’s most important chip companies, which either belong to Tsinghua Ziguang or have a stake in it.
A group of lawyers representing a group of Hong Kong-based holders of Tsinghua Ziguang bonds filed a statement of claims in the Hong Kong High Court in February, according to documents seen by the Financial Times. A person familiar with the matter said it represented a first step to temporarily freeze Tsinghua Ziguang’s assets overseas before any consolidation or restructuring action by mainland China against it. If the action is successful, the court order could prevent Tsinghua Ziguang from selling its overseas assets and using the proceeds from the sale to pay off its debts in China.
“If we manage to do that, then those assets should not go into an in-country restructuring,” the source said. The actual value of Tsinghua Ziguang’s overseas assets is unclear, he said, as is the company’s communication plan to resolve its debt problems.
Tsinghua Ziguang did not respond to a request for a response from the FT.
Tsinghua Ziguang has CNY202.9 billion ($31.2 billion) of debt as of June 2020, about a quarter of which will mature in the middle of this year, according to Debtwire data based on company filings.
Foreign bondholders of Tsinghua Ziguang said they were motivated in part by the action in the Hong Kong court to try to push Tsinghua Ziguang to provide more transparency. The case is further complicated by the difficulties foreign investors face in collecting debts from mainland Chinese conglomerates, even from Hong Kong.
People associated with the case say, “We don’t have a lot of protection, it’s a company in the country and the offshore legal structure doesn’t work in the country.”
The lawsuit may also be of interest to other mainland China offshore bondholders. According to Dealogic, Chinese non-financial companies owe $575 billion in overseas dollar-denominated debt.
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