2014-07-30

Credit Guarantee Firms Continue to Implode, Private Bonds Default

Much of the financial press focused on another potential corporate bond default last week, which was averted when Huatong Road & Bridge received a bailout. This doesn't mean the overall system is being bailed out. Private bonds are still defaulting and credit guarantee firms are still falling like dominoes. Multiple cases are unfolding across the country, with the big one in Sichuan and now one in Tianjin. The sums at stake are as large or larger than the averted default last week, but additionally these private markets are extremely regional. Losses are not diversified across public markets, but concentrated in one of China's regional economic zones.

From Sina Finance:
A private bond from a Tianjin composites manufacturer is headed for default. Employees at that composites firm said the company has no cash flow, unless you tear apart the factory and sell it off. The composite firm's parent company is involved in credit guarantees itself, to the tune of about ¥400 million, in addition to other debts it cannot repay. The underwriter of the bonds in question is China Securities Co. One private market analyst said these defaults do not affect the bond markets, but they are a major blow to the private debt markets. He estimates that this case will increase credit costs in Tianjin by 50 basis points. He also said that even good credit guarantee companies are failing due to systematic risk. Source: (海泰或失担保能力 投资人拒绝12津天联延期)

From 21st Century:
Also involved is Tianjin Hi-Tech Investment Guarantee (天津海泰)failing to make good on a credit guarantees. Although regulations say a credit guarantee firm cannot lever up beyond 10 times its capital, Hi-Tech is levered up to 13 times its capital of ¥500 million. The firm's legal representative has gone missing and employees at the firm are resigning one after the other. The firm is being sued by multiple banks and many borrowers. The borrowers cannot repay and are demanding that Tianjin Hi-Tech fulfill its guarantee to repay. There are more than 20 cases already underway, which combine for about ¥350 million yuan. Hi-Tech also made guarantees on the above mentioned private bonds.

“12津天联”兑付关口再沟通 海泰担保危机大起底
"Jin BBDO 12", "12 Kim Tae debt" incident sparked concerns about credit risks.

Informed sources, currently on "12 Jin BBDO 'bond reimbursement issues still under negotiation process to settle arrangements for follow-up programs have not been clear, but is actively coordinating relevant departments in Tianjin, investors are still on the government to do to help restore possible loss of more than something to look forward.

A source close to senior underwriters that according to the beginning of the bonds to raise the agreed point of view, July 29, 2014 implementation of the right to sell back the final deadline for investors. If the settlement before the close of the 29th, as long as the parties agree through negotiation, settlement, if not handled directly by the CSI board allow repayment of principal is not accounted for breach of contract.


However, the bad news is that, as was July 10 in Japan for a similar bond default interest "12 Kim Tae debt", to settle the issue is not fully implemented, is facing difficulties. The Commission made it clear that at a regular press conference on the 25th, and asked to "market, legalization" principle proper disposal, and suggests investors bonds issued in accordance with the contract, to actively seek arbitration, civil litigation and other legal means to safeguard their legitimate rights and interests .

The Shanghai Stock Exchange has requested the Issuer, the Trustee and effectively perform their duties, and with local government departments approached, safeguard the legitimate rights and interests of investors. Zhejiang Securities underwriters also have repeatedly organized bondholder meetings and major shareholder of the issuer to communicate, to seek ways to defuse the risk of default.

Difficult performance guarantee company

Wind data show Hitech guarantees for "12-chun BBDO" provide "full unconditional and irrevocable joint and several liability guarantee" from the date of the guarantee period for the "guarantee letter" in effect until the current private placement bonds related to the expiration of the debt date two years. But informed sources, Hi-Tech has secured through informal channels to 12 Tianjin BBDO confirmed the bondholders can not fulfill guarantee obligations.

According to Hi-Tech reporter obtained the guarantee of financial data, as early as the end of the first quarter of 2013, the registered capital of 500 million yuan guarantee balance of Hitech guarantees reached 7.592 billion yuan, up to a multiple of 13 times guarantee. According to the "Provisional Regulations financing guarantee company," the balance of the financing obligation secured financing guarantee company shall not exceed 10 times its net assets.

Debt Credit particular commented that due to the presence of defects in Hitech security aspects of risk management, resulted in a significant decline in profitability. 2013 was partially secured corporate event of default, due to assume security responsibility Hitech guarantee larger compensatory occurred, the company increased the provision rate guarantee compensation reserve, according to its 2013 audit report, the company accrued year guarantee compensation reserve 133 million yuan, resulting in its net profit fell sharply to -1.73 billion.

Also, if you take out the guarantee risk provisioning for each of the factors, net profit fell provision before 2013 the company is still very serious, partly because of a serious decline in 2013 revenue levels, while holding to maturity investments exist part of the entrusted loan impairment, the impairment of assets entrusted loans have risen sharply.

Litigation involving multi-pen

People are surprised that, in the issuer's legal representative Ji-group "lost contact" core staff have left, almost in closed state, unable to guarantee the company will not only compensatory, or even facing many lawsuits are subject to judicial freezing of assets, included in the national courts the debtor promises list, which sum bonds issued from just one and a half years.

According inquiry was informed 21st Century Business Herald reporter, Tianjin Hi-Tech Investment Guarantee Co., Ltd. in the National Court debtor information inquiry system has five information to be enforced, the filing period from May 2013 to February 2014 May 25, 2010. Involving an amount of 117 million yuan, of which there are two cases 3 700 million is still running.

Another reporter learned that, since 2014, Hi-Tech guarantees the defendant's case is also up more than twenty cases, involving 3.46 billion yuan. Most of them because Hitech secured as collateral, borrower can not repay the loan and requested jointly and severally liable. There is a sum of 66.87 million yuan of loans from its own natural Hitech guarantee Xu, since not returned and sued by creditors.

Because the majority of cases still pending, the creditor has applied to the court in advance asset preservation, freezing and seizure of banks guarantee Hitech corresponding assets. In several cases, execution, execution Hitech guarantee objections raised and asked the court to "suspend the deduction of funds to creditors in order to avoid the loss can not be recovered. Lifted or partially lifted bank account, allowing it to handle the normal corporate guarantee business, prevent the risk of further expansion, causing social instability. "

Hi-Tech to provide security guarantees because, unable to pay its creditors and the case to court, many creditors are banks. For example, loans to Tianjin Tianjin Branch of China Merchants Bank Co., Ltd. Top tires provided 13.24 million yuan. Huaxia Bank to Tianjin Xing Chuan Freight Co., Tianjin Mei Teng Copper Co., Tianjin East politics of concrete mixing Engineering Co., Ltd. to provide loans were 15.37 million yuan, 18.12 million yuan and 25.19 million yuan of. Tianjin to Tianjin Branch of Bank of Communications Science and Technology Development Co., Ltd., Baxter loan 18 million yuan. The fourth branch of the bank loans to Tianjin Tianjin Sheng Delong Garment Co., Ltd. and Tianjin New Technology Industrial Park O-Net Technology Co., Ltd. and 9,000,000 yuan to 13 million yuan, respectively.

In addition, some of Hitech back guarantee private lending companies and small loan guarantees. Tianjin Construction Union were limited by guarantee, 15.21 million yuan loan; Juhui Microfinance Ltd. of Tianjin, Tianjin Landmark Microfinance Ltd., Watson Microfinance Ltd., Tianjin Joint Venture Investment Guarantee Co., Ltd. has tens of millions of loans guaranteed by Hitech guarantee, the borrower is the medium most small businesses.

Particularly noteworthy is that in addition to 50 million yuan guarantee Hitech "12-chun BBDO 'private debt guarantees, but also for the issuers of bonds Composite Materials Co., Ltd. of Tianjin Binhai guaranteed another two pen financing. March 2014, creditors Parc Wealth Investment Management Limited Tianjin Binhai days because of the Allianz Group Co., Ltd., Tianjin Binhai two pen composites were 12.44 million yuan and 23.52 million yuan loan can not be returned, so apply to the court The debtor and the guarantor guarantees Hitech corresponding assets seized.

According to the lawsuit incomplete information, including the "12-chun, BBDO," including, Hitech provides a total guarantee amount guaranteed jointly and severally liable for up to 85,960,000 BBDO composites.

Or adverse impacts to fish

In late July after the 21st Century Business Herald reported that the first "12-chun BBDO 'principal and interest on the verge of default, to provide" full unconditional and irrevocable joint and several liability guarantee "security guarantee Fanghai Tai insolvent, there is pessimism for breach of contract The spread.

21st Century Business Herald reporter queried by Wind, in addition to "12-chun, BBDO," there is another two bonds guaranteed by the Hitech participation guarantee.

One of them is "12 Tianjin Binhai SMECN1", namely Tianjin Binhai Hi-tech SMEs year 2012 the first phase of a collection of notes from Tianjin Hi-Tech Investment Guarantee Co., Ltd. Tianjin Bohai Financing Guarantee Co., Ltd. joint guarantees, in 2015 2 January 3 officially expires. As the market in the inter-bank bond issuance sum, this may be the direct cause Dealers Association requires an understanding of the situation.

Another sum is "13 JH 01", ie Neptune Offshore Engineering Technology Co., Ltd. of Tianjin in 2013 SME private debt (Phase I), guaranteed by the Tianjin Hi-Tech Investment Guarantee Co., Ltd., in 2015 a May 9th maturity.

In addition, the parent company of Tianjin Hi-Tech Hi-Tech Guarantee Holding Group Co., Ltd. also issued a seven-year term in 2010, 1.5 billion yuan of corporate bonds. This should provide the sum bond rating report in 2013 to track this year, but the reporter did not check online information in Chinese bonds to the above report.

According to the 2012 Emirates International tracking its rating report, the Tianjin Hi-Tech Holding Group's 2012 net operating cash flow was -14.48 billion, net operating cash flow / total liabilities and net operating cash flow / current liabilities -6.91% and -15.08%, respectively, in 2012 the company invested net cash flow was -7.38 billion from January to March 2013, the company invested net cash flow and net cash flow from financing activities was -1.49 billion and $ 1.26, respectively, billion.

In fact, the first single issue since July 2012, private debt between two rapidly expanding market size, until the end of June reached 471, 59.697 billion yuan.

Xu Hanfei reminded intensive outbreak of a credit event has a negative impact on market sentiment. Overall, the market adjustment mark, intensive credit event disclosures on market sentiment bring further negative impact, especially in high-yield debt of private sector, the opportunity to profit-taking pressure is relatively large. This stage of the impact of market sentiment, investors Bukebufang.

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