Giant Chinese-industrial Group Unable To Repay Billions Faces Default
The default would seriously affect not only lenders in Communist China but also corporate investors abroad, stated analysts.
Western investors may soon be surprised by the earthquake in Communist China’s banking sector. The sector has been far from transparent with the Beijing imposed quotas on lending, “guarantees” of local governments, and a chain of unexplained subsidies. But until now, the shareholders trusted in the regime’s infinite ability to bail out.
This time may be different after Communist China’s economy lost its ability to absorb shocks and account for the over-supply.
A report revealed that almost 70 Chinese and foreign banks, as well as trust companies, had $5.1bn in outstanding lending to Huachen Automotive Group. The Beijing-control firm is “a subsidiary” of such giants as BMW.
Gone are the days when Chinese banks could roll over troubled debt indefinitely
to make their financial statements look good
The recent defaults of Beijing-backed firms have shattered a longstanding belief among investors that local governments in China will always bail out troubled state-backed groups and have prompted fears about the health of the broader financial system, suggested Financial Times which first published an info.
The cut of lending to Huachen would affect seriously not only lenders in Communist China but also abroad out of which the most exposed is Singapore’s DBS, which with $11m of outstanding lending. The home lenders that extended credit to Huachen include China Construction Bank and Industrial and Commercial Bank of China, two of the country’s “big four” state banks. Huachen owed them about $423m according to the creditor document, which tallied the group’s loans through to September last year.
Chinese analysts predicted that the wave of recent defaults could result in a deterioration in asset quality. Gone are the days when Chinese banks could roll over troubled debt indefinitely to make their financial statements look good, stated one of them.
DBS representative stated that a failure to deal with Huachen’s debt issue will shake the confidence of foreign institutions and global investors in the business in China.
BMW's partner in China, Huachen Automotive Group Holdings, entered bankruptcy restructuring on November 21.
Huachen, which used to be listed on the New York Stock Exchange, disclosed on Nov. 14 that it had defaulted on 6.5 billion yuan on debt obligations. The total included a 1 billion yuan bond it failed to repay on Oct. 23, sending shock waves through the market. It was only the beginning of its troubles.