The defaulted state-owned enterprise (SOE) has called for a bondholder meeting on January 25 regarding a Rmb2bn three year medium-term note (MTN).
In a Monday filing on the Shanghai Clearing House, Yongcheng Coal said it is facing tight liquidity and high pressure to make bond payments, and that there is uncertainty whether it will be able to redeem the MTN.
The MTN was priced at par to yield 7.5%, and falls due on February 2. Four investors had placed orders for the Rmb2bn deal when it was sold in January 2018, according to a filing at the time.
The Henan-based coal miner surprised the market when it failed to repay a Rmb1bn 4.39% 270-day note last November after reporting Rmb47bn of cash, and has since defaulted on three other Rmb1bn bonds. Since its first default, bondholders have agreed for Yongcheng Coal to pay only half of the principal for a total of six bonds. while extending payments on the other half — worth Rmb3bn combined — to the second half of 2021.
The coal company is 96% owned by Henan Energy and Chemical Industry Group Co, a provincial-level SOE based in Henan. Its default, together with non-payments from other AAA rated SOEs including Tsinghua Unigroup Co and Huachen Automotive Group Holdings Co, triggered volatility among domestic credit bonds — bonds issued by corporates and financial institutions — at the end of last year, causing bond yields to spike and deals getting pulled.
But onshore yields have since fallen from their December highs with primary supply also well underway. One year triple-A rated bonds onshore were yielding 2.97%, three year were at 3.47% and five year at 3.72% on Monday, ChinaBond data showed. Only a month ago, they were seen at 3.39%, 3.79% and 3.94%, respectively.
There were 428 credit bonds, including ABS, sold in China so far this year, compared to 418 during the same period in 2020, Wind data showed. The volume, however, is 32% lower than a year ago.
But Yongcheng Coal’s Henan SOE peers have struggled to access the debt market. Only one of them managed to sell a public bond since the November default, with Henan Investment Group pricing a Rmb500m one year short-term commercial paper on December 28.
Market participants warned
On December 31, the National Association of Financial Market Institutional Investors (Nafmii) announced a ban on China Chengxin International Credit Rating from rating non-financial bonds in the interbank market for three months. This was for alleged violations when providing credit rating services to Yongcheng Coal and its parent Henan Energy.
Yongcheng Coal’s accounting firm Xigema Certified Public Accountant was also given a three-month ban on its businesses relating to Nafmii-regulated bonds.
Most recently on Friday last week, Nafmii criticised Haitong Securities, two of its subsidiaries Haitong Asset Management and Haitong Futures, as well as Donghai Fund Management for allegedly violating self-regulatory rules in the interbank market. These include Haitong’s order to its subsidiaries to help the “related issuer” buy and trade a portion of its own bonds, Nafmii said in a notice. Haitong said in a filing that it will rectify the issues raised by Nafmii and improve its internal process.
While Nafmii did not name the “related issuer” in the notice, the issuer is understood to be Yongcheng Coal. The regulator launched an investigation into Haitong and its subsidiaries shortly after the company's default, for helping Yongcheng Coal’s bond issuance and alleged market manipulation.
Nafmii’s investigations also extended to China Everbright Bank, Industrial Bank and Zhongyuan Bank, but it is yet to announce the findings.