According to Bloomberg data, 40% of the 130 mainland companies that defaulted on their debts entered bankruptcy reorganization.
In recent years, the scale of mainland corporate bond defaults has been rising, with more than 130 companies defaulting on their bonds in the past seven years, of which 40% are facing bankruptcy restructuring.
Bloomberg reported on Feb. 23 that Bloomberg aggregated data showing that from 2018 to 2020, the cumulative size of credit bond defaults in the mainland exceeded 400 billion yuan, and the amount of defaults so far this year has exceeded 13 billion yuan.
According to the report, recent cases of mainland bond defaulters entering bankruptcy reorganization procedures have increased year by year, including many mega-enterprises such as Beifang Founder Group, Brilliance Auto Group, Shanghai Huaxin and HNA Group. According to data aggregated by Bloomberg, more than 130 Chinese companies have defaulted on their bonds in the past seven years, and about 40% of them have entered bankruptcy reorganization.
In the second half of 2020, state-owned enterprises such as Henan Yong Coal Group and Brilliance Auto Group defaulted on their debts, raising investors’ concerns. Brilliance Auto Group, a local state-owned enterprise in Liaoning Province, entered bankruptcy reorganization proceedings soon after its debt default.
It is worth noting that before entering bankruptcy reorganization, Brilliance Auto set up a subsidiary company, Liaoning Xinrui, and transferred the equity of its core assets, Hong Kong-listed Brilliance China, to Xinrui’s name, and quickly pledged this part of equity, triggering market concerns about local SOEs’ debt evasion. Under public opinion and market pressure, Brilliance Continental’s controlling shareholder eventually released the share pledge.
According to the latest announcement of the information network of the bankruptcy reorganization cases of mainland enterprises, the administrator proposed to consolidate and reorganize the subsidiaries including Liaoning Xinrui.
Recently, the bankruptcy reorganization case of Guiren Bird, a mainland listed apparel and footwear company, has also raised market concerns.
According to sources familiar with the matter, the restructuring administrator said at the first creditors’ meeting in January this year that nearly half of the accumulated nearly 2.5 billion yuan of ordinary claims were confirmed to come from a number of related parties, including subsidiaries, and that these related party creditors would also enjoy voting rights. In response, creditors of ordinary financial institutions objected, fearing that this would infringe on the interests of other ordinary creditors.
According to a joint letter submitted to the Quanzhou Intermediate Court in Fujian Province and the reorganization administrator in early February, seen by Bloomberg, the creditors explicitly requested the administrator to conduct an in-depth verification of related claims. The Quanzhou Intermediate Court is said to have decided to hold a meeting of the joint creditors’ representatives after the Chinese New Year on the yellow calendar.
Bloomberg reported that for bankruptcy reorganization enterprises, bondholders are not always able to defend their interests. For example, the Dandong Municipal Court forced a ruling in December 2019 to adopt Dandong Port’s bankruptcy reorganization plan, approving a plan proposed by an administrator consisting of officials recommended by the local government, while a plan proposed by representatives of the original shareholder side, which is more popular with creditors, was not supported, a move that many creditors are upset about and believe will greatly affect the local business environment.
Deng Hao, chairman of the private equity fund High Entropy Capital, said, “The bankruptcy and collapse of enterprises that lose their long-term sustainable operation is a normal phenomenon of the market economy of the survival of the fittest, and the market is angry not at the default bankruptcy, but at the extremely bad debt evasion.”
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