China’s credit markets on Friday sent their latest sign of stress as coal importer Winsway Enterprises Holdings Ltd (永暉實業控股) became the nation’s second company to default on a US dollar-denominated bond this year.
The Hong Kong-listed company was not able to pay US$13.2 million of semi-annual interest due on Friday on US$309.3 million of notes that mature next year, according to a Hong Kong stock exchange filing on Friday. A 30-day grace period expired on Friday after the firm skipped the payment on April 8 and hired advisers to restructure its debt.
The failure sends a signal that prices of coking coal used in steelmaking are far from rebounding, as the government steps up efforts to curb pollution and China’s economic slowdown deepens. Homebuilder Kaisa Group Holdings Ltd (佳兆業集團) defaulted last month, becoming the first Chinese developer to miss interest obligations on its US currency debt, while underground mall developer Renhe Commercial Holdings Co (人和商業控股) bought back its US dollar notes at a discount in a so-called distressed exchange.
Winsway said in the filing on Friday that “discussions with potential equity investors in connection with a potential equity investment” by issuing new shares are continuing. Winsway said it “will make a further announcement regarding its discussions with bondholders and potential equity investors when appropriate.”
The recent missed payments are the latest challenge for foreign investors in China, who might need to navigate unfamiliar means of recourse to a defaulted company’s assets.
“The risk for US creditors is China’s bankruptcy law is pretty much untested,” said Kevin Starke, an analyst who specializes in distressed investments at CRT Capital Group Inc in Stamford, Connecticut. “It’s difficult to get access to assets, because they are a couple of levels removed. Complicated structural charts are making it very difficult to invest in distressed here in the US, let alone in China.”
Winsway’s 8.5 percent notes for next year, sold to investors at par, or US$1 on the US dollar in April 2011, fell US$0.0185, the most in more than a week, to US$0.283 on the US dollar on Thursday in Hong Kong, Bloomberg-compiled prices show. They have lost 10.12 percent this year and tumbled 17.97 percent last year.
Standard & Poor’s Financial Services LLC cut Winsway to selective default last month, saying it was unlikely the overdue coupon would be paid.
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