Two Chinese firms miss billions of yuan in bond payments as woes mount

[SINGAPORE] Two Chinese companies failed to repay bonds worth a combined few billions of yuan on Monday, underscoring rising debt risks in the highly leveraged nation as the economy slows.

Peking University Founder Group was unable to secure sufficient funding to repay a 270-day, 2 billion yuan (S$388 million) bond, according to a company filing to the National Interbank Funding Center.

Tunghsu Optoelectronic Technology failed to deliver repayment on both interest and principal on a 1.7 billion yuan bond, according to Shanghai Clearing House.

The quickening speed of bond defaults in China, especially among ailing private firms, highlights the growing financial strain triggered by the country's worst economic slowdown in three decades and unabated trade tensions with the US.

Last week, industrial firm Xiwang Group failed to pay a 1 billion yuan bond Wednesday, missing a fresh repayment deadline on an already defaulted bond.

Founder Group's missed payment on the bond, which has a 15 business-day grace period, is set to escalate concerns about the weak finances of debt-laden business arms of Chinese universities. The company and Tsinghua Unigroup, a top chipmaker run by arch-rival Tsinghua University, have been under the spotlight in recent months following a tumble in their US dollar bonds.

Founder Group's debt-asset ratio rose to 82.74 per cent as of the end of June from 81.94 per cent at the end of last year, with net losses widening to 1.05 billion yuan from 867 million yuan in the same period.

Tunghsu Optoelectronic Technology's five-year paper was originally due December 2021 but investors recently opted to exercise a put option on it. The electronic display panel maker has now missed three onshore bond payments in the past month.

Tunghsu failed early repayment on 1.97 billion yuan of principal and interest on a note on which bondholders similarly exercised a put option. It also was unable to make good on an interest payment on another local bond.

Tunghsu's financial woes are indicative of China's sluggish manufacturing sector, which saw spending only barely above the record low level hit in September.

It also highlights the payment struggles faced by the nation's private firms, which are being hit harder by the economic slowdown. Their access to the banking sector remains limited as lenders focus more on politically influential state-owned companies.

Private sector firms accounted for more than 80 per cent of total defaults this year, according to Bloomberg-compiled data.

Moody's Investors Service said it expects 40 to 50 new, first-time defaulters in 2020, compared with 35 so far this year.

BLOOMBERG