Posted on 29 Sep 2014
Two Chinese steel companies said they were having trouble paying
back lenders, indicating that China's slowing economic growth and a steel glut
were taking an increasing toll on the industry.
State-owned Sinosteel on Wednesday said it was having difficulty paying back
some lenders as a result of unpaid bills from customers. It denied media
reports that it failed to meet tens of billions of yuan in principal and
interest repayments to domestic banks but didn't disclose an amount.
Meanwhile, Chinese steel transporter Anhui Wanjiang Logistics said one of its
units failed to pay 2 billion yuan, or about US$325 million, in debt on time
and that the unit's chairman had been detained by authorities on allegations of
"serious dereliction of duty." Chairman Wang Xiaoxiu couldn't be
reached for comment, and the company didn't return calls for further comment.
Anhui Wanjiang said it had been hit by the downturn of China's steel market and
had used up its bank credit. The company said it had 16.7 billion yuan in debt,
including 12.7 billion yuan owed to 19 banks, of which almost 1 billion yuan
was overdue. The company said it had another 1.1 billion yuan in overdue
nonbank debt.
Anhui Wanjiang also said banks had extended excessive credit to its Huaikuang
Modern Logistics unit, which had 1 billion yuan registered capital but received
13 billion yuan in bank credit. "Banks didn't fulfill necessary
examination duties when extending the credit," Anhui Wanjiang said in a
filing with the Shanghai Stock Exchange.
At Sinosteel, board Secretary Li Kejie said the company faces financial strains
this year because of "the economic slowdown, the steel-market downturn and
tightened bank credit." He said the steelmaker was studying measures to
reverse its difficulties and would seek external supports including those from
financial institutions.
Industrial & Commercial Bank of China said Sinosteel hadn't defaulted on
the bank's loans. The bank, the country's largest lender by assets, said its
loans account for 1.3 per cent of the steel company's total borrowing.
China produces nearly half the world's steel and its output rose sharply in
recent years as government policy spurred steel mills to expand output
substantially. At the same time, steel companies racked up large amounts of
debt to stay afloat.
Although Beijing has pledged to tackle overcapacity, China's steel industry
continues to increase production. Part of the problem is that local governments
are reluctant to close steel mills for fear of fueling unemployment. China's
steel output rose 4 per cent in August from a year earlier to 68.9 million
metric tons, according to the National Bureau of Statistics. The price of steel
bars has fallen 18 per cent this year to 2,876 yuan (US$469) a ton, according
to data provider Wind.
Beijing has targeted the steel industry for consolidation because of worries
about overcapacity and pollution. The problems have been exacerbated by China's
slowing economic growth, which was 7.4 per cent in the first half. The Chinese
economy grew 7.7 per cent last year, slowing from previous years.
The slowdown has raised worries among economists about the potential for loan
defaults and rising amounts of bad debt. Local governments and others have
moved in to stop painful defaults, which has spared hits to the financial
system but which experts warn could lead to bigger problems down the road.
China's unprofitable steel traders have been struggling to survive by getting
cheap credit from banks, but a metal-financing scandal in the country's eastern
port of Qingdao this summer has made the practice increasingly difficult.
