Stepping on thunder is more because of belief in state-owned enterprises
Game of permanent coal debt: a struggle between creditors and government
In fact, among the more than a dozen creditors present on that day, only a few actually held the 20 Yongmei scp003 which had already broken the contract, and more held the unexpired bonds of Henan energy or its subsidiary Yongcheng Coal and Power Holding Group Co., Ltd. (hereinafter referred to as Yongmei Holdings), seeing that the lead wire has been ignited, I dont want to stay in the office, so the pressure is too great..
The lead was ignited a week ago. On November 10, Yongmei holdings announced that due to the shortage of working capital, it failed to raise sufficient funds on schedule, and 20 Yongmei scp003 constituted a substantial breach of contract. As Henan energy and Yongmei holdings all had cross protection clauses in their public offering bonds of 26.5 billion yuan, if the principal and interest of 20 Yongmei scp003 were not fully repaid within 10 working days after the default, the cross protection clause would be subject to Trigger. How can you not be nervous. If you want to explode, it will explode. A creditor holding Henan energys winning vote due next year told China News Weekly.
After a one-day wait on November 16, creditors met again with Henan energy management on November 17, but the number of creditors present dropped sharply compared with November 12. Some creditors recalled to China News Weekly that there were at least 40 or 50 creditors present on the 12th, which could be called a big gathering of financial institutions. The scene was once fierce, and representatives of financial institutions questioned Henan energy staff, who owes whom? It was also at the meeting on the 12th that Henan energy management personnel promised to strive to collect 1 billion yuan to repay the principal within 10 days.
After the substantial breach of contract of 20 Yongmei scp003, the market immediately questioned: why Yongmei holdings still issued a period of RMB 1 billion medium term notes on October 20, even though it was unable to repay the principal of RMB 1 billion, especially its announcement of free transfer of equity of high-quality assets of Zhongyuan bank in early November triggered doubts from the outside world on whether it constituted debt evasion or not. As a matter of fact, the capital chain of Henan energy, the parent company of Yongcheng Coal Holding Co., Ltd., and the largest national enterprise in Henan Province, is already very fragile. In the words of a person from the self-supporting Department of a securities firm, the problems are all on the surface..
Fragile capital chain
The announcement was issued at more than 5:00 p.m. on the 10th. If you are still struggling to cash, how can it be released so early? Its usually late at night. A person from the asset management department of a securities firm told China News Weekly, brilliance is the kind of person who has been lying in the ICU for a long time, and it will be sooner or later to default. However, the external feeling of the default of Yongmei holdings is that it suddenly lies down . A series of signals sent before pointed out that the principal and interest of 20 Yongmei scp003 can be cashed on time.
Just a week before the announcement of substantial breach of contract, Yongmei holdings issued a cashing announcement of 20 Yongmei scp003 on November 3, and issued a 1 billion yuan winning vote on October 20. Knowing clearly that the capital chain may be broken, why do you still need to raise funds? An insurance company asset management department questioned that. By the end of March 2020, Yongmei holdings announced that its monetary fund balance still had 48.614 billion yuan, which rose to 49.978 billion yuan in the middle of this year, but why could it not repay the bond principal of 1 billion yuan?
A person from the capital section of Yongmei holdings disclosed to China News Weekly that as of the end of September, there were still more than 47 billion yuan of monetary funds, but mainly restricted funds, for example, some loans, the margin of notes, can not be used.. Moreover, before the default of 20 Yongmei scp003, Yongmei holdings did not keep any funds in its daily account. The funds are cleared daily and collected to Henan energy. We need to apply for the use of funds, which should be approved by the group level.
Before 2018, Henan energy only collected funds from its subsidiaries on a regular and on-demand basis. In recent years, due to the tight cash flow and the great pressure to repay debts, Henan energy has collected funds every day. A Henan energy insider told reporters that the debt is unified borrowing and repayment at the group level, and it can be seen from the issuance of bonds that the Yongcheng Coal Industry is bound to cooperate unconditionally.
The issuance of Yongmei holding bonds is basically initiated by Henan energy. After going through the process, we will tell them that they must issue the bonds. A person who once served as the lead underwriter of Yongmei holding bonds told reporters that Yongmei holdings had funds which were collected in Henan energy and lent to other subsidiaries. A Henan energy management also admitted that in addition to the restricted funds, some of the funds of Yongmei holdings were borrowed by the group.
This can also explain why many creditors gathered in Henan energy after the explosion of 20 Yongmei scp003, and the holding account of Yongmei did not have money, while Henan energy had only 100 million yuan of cash to use.
In fact, Yongmei holdings lying down is not sudden. According to the people from the asset management department of the insurance company mentioned above, the risk control department had already issued an early warning, and the company had already decided to sell 20 Yongmei scp003 in the secondary market, but considering the short term, it finally decided to continue holding. After March this year, the company has no longer added bonds of weak 3A state-owned enterprises such as Henan energy and Yongmei holdings.
Before the bond explosion, risks appeared in the banking and non-standard business level at least in September this year. In terms of the interest bearing liabilities of Henan energy, bank loans account for about 140 billion yuan, and the balance of bonds is about 50 billion yuan. In addition, there are more than 50 billion yuan of non-standard business.
In September, we almost didnt pay back the money. At that time, he coal company also said that it had money, but the senior management of Henan energy finance company told me, all their money is in the account of the financial company, and we have used up all of them. . In October, 10 million yuan of deposit was directly used to fill in the hole. A financial leasing company who lent money to Henan energys Hecheng coal company told the reporter, the extension plan has been negotiated, and an agreement is waiting to be signed. However, the default of 20 Yongmei scp003 has brought variables.
Henan energy insiders said on November 19 that although only 20 Yongmei scp003 has actually breached the contract, and the bank and non-standard business have not yet breached the contract, some due principal and interest have not been paid and have been in communication. After the opening of the banks debt Committee on September 20, the bank has basically negotiated the adjustment of interest settlement methods. Some interests are settled once a year or half a year, while others are cleared with the principal, while financial leasing companies are communicating with each other.
Behind the fracture risk of Henan energy capital chain is the pressure of debt repayment. Since this year, Henan energy has paid off 14.3 billion yuan in net. In terms of bonds, although Henan energy has no bonds due within the year, Yongmei Holdings has defaulted on its 3 billion yuan bonds due in November, and another 3 billion yuan bonds mature in December.
A broker said, we almost helped Yongmei issue a bond in October, everything was ready, and finally they didnt find the money themselves. In fact, since the second half of this year, the bonds issued by Henan energy are basically purchased by financial institutions in Henan Province, local financial institutions have been filled up, basically reaching the upper limit.
As long as you can think of, the state-owned enterprises in Henan Province have lent us money, and the much questioned equity of Zhongyuan bank is not a free transfer. An insider of Henan Energy said. Previously, Yongmei holdings announced on November 2 that it would transfer the equity of Zhongyuan bank to Henan Machinery and equipment investment group and Henan investment group respectively. After the default of 20 Yongmei scp003, the free transfer was doubted to be the transfer of high-quality assets with good liquidity before the default. However, the aforementioned insiders disclosed to reporters, the reason why the equity was transferred to these two companies was because of the urgent demand for temporary funds. Henan energy borrowed more than 2 billion yuan from the two companies, and then promised to transfer the equity to them.
In the case that the financing channels have been basically exhausted, Henan energy has been through the squeeze wage repayment. The group level has owed five months wages, and front-line workers still owe two months. Some employees social security may only be paid until May this year. Henan energy insiders disclosed to reporters that employees of some subsidiaries had more arrears of wages in the early stage, so they could only work outside as part-time workers. Employees who started early could still find some temporary jobs, and some employees could not even find such jobs. When communicating with some creditors on November 19, the management of the company said frankly that the cost of monthly wages was about 800 million yuan, arrears of wages is to protect bonds and maintain a good image of the market.
According to the above-mentioned insiders, in order to repay the debts, Henan energy even used the funds for safety production, this fund is generally not allowed to be used, but there is really no way to do so. It has been reported to the provincial government. No money can be drawn from production and operation.
Dragged down by chemical industry?
Compared with last year, the average price of a ton of coal from January to October has dropped by more than 30 yuan. Recently, the coal price in Henan province did not rise by a small margin
In addition to the influence of the whole coal market, a person close to the state owned assets supervision and Administration Commission of Henan Province analyzed to China News Weekly that the free expressways had brought chain impact to coal enterprises in Henan Province for a period of time. For example, in the original, Shaanxi coal may increase some costs because of transportation, but after the highway is free, they began to use highway transportation, and the transportation cost decreased significantly, In addition, it is open-pit mining, and the input cost is small, and Henan coal enterprises are mostly mine mining, so the price advantage is no longer
Yongmei a negative 500 meters deep coal mine underground mining site. Pictures / China Singapore
Nevertheless, Yongmei holding is still considered to be the best quality asset of Henan energy. Henan energy is just a shell, with only a few shares in its subsidiaries. Even their office buildings are in the name of the subsidiaries and have been mortgaged out. An asset management company told reporters, we have investigated Henan energy for many times, and their core value is Yongmei holding.
The coal assets of Henan energy mainly include Yong coal, Hemei, coking coal, etc. Yong coal has the largest scale, and its mining time is relatively late. It belongs to anthracite. The coal quality is relatively good, comparable to that of Shanxi coal, and the price that can be sold is relatively high. Although coking coal is also anthracite, it has been mined in the early 20th century. Many mines have stopped production, and the coal quality of Hechang coal is not as good as that of permanent coal and coking coal. In fact, a reporter who is familiar with the coal market in Henan Province for nearly two years can also tell a coal enterprise that it is better
According to him, the collection is not every day, and the normal production and operation of Yongmei still needs some funds. Under normal circumstances, the average daily net capital inflow may be more than 10 million yuan, and the cash flow of Yongmei is still relatively large. And a broker told reporters that Yongmei is a chicken laying golden eggs for Henan energy.
In fact, the real drag down Henan energy and Yong coal holding or chemical plate. This can also be seen from the financial statements of Yongmei holdings. In the non coal businesses such as trade, chemical industry and nonferrous metals, the chemical business income decreased by 29% year-on-year last year, and the gross profit margin of Henan energy and chemical industry business even turned negative in 2019.
The original chemical plate did not divest, the annual net profit also has several hundred million, after the chemical plate divestiture, the capital flow should be able to enlarge. The above-mentioned permanent coal holding capital branch personnel told reporters. On November 2, Yongmei Holdings has stripped off the chemical sector as a whole.
Henan energys chemical sector continued to lose money. Some insiders told China News Weekly that the chemical sector brought about a net loss of nearly 4 billion yuan a year. In fact, except for the chemical business, which does not make money, all other businesses make money. It is just a matter of making more and less. As a result, the net profit of Henan energy has been negative since 2017, with a loss of more than 2 billion yuan last year and a loss of more than 1 billion yuan in the first quarter of this year alone.
However, even considering the better cash flow of Yongmei, it is difficult to cover the bonds with intensive maturity in a period of time in the future. From November 2020 to April 2021, there are 13 billion yuan of bonds due or sold back in half a year. The aforementioned Henan energy insider said, we still need to rely on external forces, and it is definitely impossible to rely on our own cash flow.
And a self-supporting Department of a securities firm said frankly, if we really talk about the root, its not bad for the enterprises. The problems are all on the surface. Its just a matter of when the government wont save it, because its been rescued all the time.
Save or not?
It was really difficult for them in September, but in October the government had a series of bail-out and capital injections. A securities company asset management department told China News Weekly.
The report mentions that with the joint efforts of all parties, the full outbreak of the energy crisis in Henan has been curbed, but the current situation is still extremely severe. Among them, there is a clear prediction for the rigid fund gap of Henan energy by the end of 2020: from October to December, there are 22.9 billion yuan of bonds, non-bank loans that cannot be extended, interest and wages are due one after another The source of funds is 14.5 billion yuan, and there is still a rigid fund gap of nearly 8 billion yuan.
Subsequently, at the mobilization meeting for Henan energy reform on October 16, Liu Yinzhi, chairman of the board, disclosed that the provincial government decided to increase 15 billion yuan for Henan energy in cash, assets and other forms in batches. At present, the capital increase of 6 billion yuan has been completed, and the rest will be in place as planned.
At the end of October and early November, that is, before the substantial breach of contract of 20 Yongmei scp003, Henan energy leaders led teams to Beijing and Shanghai for roadshows. A financial institution who participated in Henan energy roadshow in early November recalled to China News Weekly that at that time, the leaders of the other side directly showed us the red head document of 15 billion yuan injected by the provincial government, expressing the hope that we would support the bonds issued by them, and released a series of favorable information to the market.
Some people close to the regulation told the reporter that most of the participants in the bond market are professional investors, so it is impossible to misjudge the companys fundamentals. Stepping on thunder is more because of belief in state-owned enterprises.
According to a person close to the state owned assets supervision and Administration Commission of Henan Province, the 15 billion yuan capital increase includes the equity of some other companies, which will be transferred to Henan energy and then pledged for financing. In addition, there is indeed a part of cash, including land resource price, bonus and subsidy funds, etc. The purpose of capital increase is to boost market confidence, and some financial institutions will continue to lend and issue bonds to it. According to the reporter, the scale of cash and assets are 9 billion yuan and 6 billion yuan respectively.
Some people close to Henan Energy said that the company had been more confident in repaying 20 permanent coal scp003. When communicating with some creditors on November 12, Henan energy management also said that in order to gather up the principal and interest of 20 Yongmei scp003, there were four plans at that time: one was to issue bonds; the other was to sell equity; the third was to coordinate a fund from the government; and the fourth was to pledge financing after transferring equity. However, none of the four plans was put into effect.
To be sure, when the 20 Yongcheng Coal scp003 broke the contract, the cash injected into Henan energy by the provincial government was not fully in place. For example, for the land resource price, it was planned to receive 2.15 billion yuan on October 15 and 800 million yuan in November. However, the 800 million yuan was not in place when the default occurred. Its not just billions of Yuan lying on the books of the Department of natural resources, which can only be paid in succession. The financial business unit explained.
After the default of 20 Yongmei scp003, Henan provincial government also kept silent for a time. This has led some creditors to question that the governments support for Henan energy has changed. We cant talk about faith when we cant borrow money, but we can talk about market-oriented disposal after default.
In the scp003 period, the government can win more support in the game. Some people who attended the pre communication meeting of 20 Yongmei scp003 holders on the 19th disclosed that the vast majority of the 14 financial institutions opposed the extension scheme of 270 days extension with unchanged coupon rate, and continued to exert collective pressure. No sincerity. If you pass this plan, you will cheat yourself.
At that time, the holders generally demanded to increase the proportion of principal payment and add additional guarantee. It is necessary to add some guarantees of 3A level state-owned enterprises in the province which are deeply bound up with the government. If there is no such guarantee and the default occurs again in 270 days, there is still no way. Some creditors told reporters, in the future, if you still cant get government support, at least drag a state-owned enterprise in through guarantee. Frankly speaking, thats it.
Since then, the amount of principal payment has increased from zero to 5% and 30%, but it is still difficult to satisfy the creditors. On November 19, only three working days before the cross protection clause was triggered, a Henan energy insider said, the most troublesome thing is that the governments attitude is still unclear.
Some holders believe that taking out such a plan means that the province will definitely take a stand, but the actual damage has been caused.
Permanent coal default shock wave
The most direct impact of 20 Yongmei scp003 default is the intensive cancellation or postponement of issuance of urban investment and energy bonds. Within a week from November 10, there were at least 28 bonds cancelled or postponed, with a scale of 22.6 billion yuan. Among them, there were not a few energy bonds, such as 20 Yangquan Coal 02, 20 Shan Coal cp005, 20 Jinneng mtn019 and 20 Yankuang mtn004.
There are also three Henan Provincial Urban Investment and state-owned enterprise bonds to be cancelled, namely 20 Shangqiu 03 of Shangqiu ancient city protection and development company, 20 Kaifeng City transportation mtn001 of Kaifeng City operation investment group, and 20 Henan transportation mtn007 of Henan Communications and Transportation Development Group Co., Ltd., with the issuance scale of 2.6 billion yuan. The chief underwriter of the three cancelled bond issuance told reporters that it was the enterprise that took the initiative to cancel the bond issuance, because it is too sensitive now, and the enterprise itself is afraid of thunder.
However, some people from the asset management department of securities companies disclosed to reporters that after the default of 20 Yongmei scp003, there are still Henan bond projects in inquiry, the work always needs to be done, but the securities companies asset management and self-management basically temporarily stop investing in Henan urban investment and state-owned enterprise bonds in a one size fits all way.
The key is whether there are still conditions to develop business in Henan? Now even yujiaoyun doesnt issue bonds. Originally, their financing cost is relatively low. The coupon rate of a three-year medium term note issued this year is only 2.7%. Faced with the question of whether Henan enterprise bond business will be carried out in the near future, a banking personage told the reporter, we just issued the announcement of Henan enterprises issuing bonds, and immediately a group of peers called and said, this is the time to issue bonds to Henan enterprises? Then we took the initiative to withdraw.
The Shanxi government has twice yelled to the market within a week. First, on November 14, Shanxi state owned Capital Operation Co., Ltd. issued a letter to the creditors of Shanxi provincial enterprises, saying that it would give an early warning 15 days in advance and ensure that there will be no default on the due bonds. A few days later, on November 18, at a special meeting held by the Shanxi provincial government for heads of state-owned enterprises and financial institutions, vice governor Wang Yixin directly yelled to financial institutions: financial institutions should have more confidence in Shanxi, and said that in todays background, there is no reason for the provincial state-owned enterprises to default.
In the 10 working days grace period after the default of Yongcheng Coal, the creditors expectation for government support has thrown the problem of how the rigid cashing can be broken to the market, and the creditors query on the evasion and cancellation of debt of Yongmei holdings is still in doubt.
The chief economist of Founder Securities said that on the one hand, there are market views that it is a malicious evasion of debt, which requires high-level coordination; on the other hand, credit bonds are risky, and investors should be responsible for their investment behavior. The Yongcheng Coal incident itself is not a complete market behavior, so investors do not bear all market risks, which may need to be coordinated and properly handled at a higher level in the future.
On November 21, the financial stability and Development Commission of the State Council said it would severely punish all kinds of debt evasion and cancellation to protect the legitimate rights and interests of investors. However, cracking down on evasive debt does not mean returning to rigid cashing. As the fixed income analyst of CITIC Securities clearly said, it is proper to gradually break the rigid cashing. However, it is not an excuse for issuers to maliciously evade debts by transferring assets and misappropriating funds, nor is it a shield for intermediaries to provide convenience. Following the self-discipline investigation on Yongmei holdings and Haitong Securities, the association of dealers also launched a self-discipline investigation on intermediary institutions such as industrial bank, Everbright Bank, Zhongyuan bank, Zhongxin international credit rating Co., Ltd., and Xigema Certified Public Accountants (special general partnership) on November 19. Source: China Newsweek Author: Chen Weishan, editor in charge: Wang Xiaowu_ NF
On November 21, the financial stability and Development Commission of the State Council said it would severely punish all kinds of debt evasion and cancellation to protect the legitimate rights and interests of investors. However, cracking down on evasive debt does not mean returning to rigid cashing. As the fixed income analyst of CITIC Securities clearly said, it is proper to gradually break the rigid cashing. However, it is not an excuse for issuers to maliciously evade debts by transferring assets and misappropriating funds, nor is it a shield for intermediaries to provide convenience.
Following the self-discipline investigation on Yongmei holdings and Haitong Securities, the association of dealers also launched a self-discipline investigation on intermediary institutions such as industrial bank, Everbright Bank, Zhongyuan bank, Zhongxin international credit rating Co., Ltd., and Xigema Certified Public Accountants (special general partnership) on November 19.