zerohedge.com / by Tyler Durden / 10/19/2015 08:55 -0400
While the macro watchers were keenly awaiting China’s macroeconomic data dump on Sunday night, which was far worse than reported (as we will show shortly), a just as notable development was taking place in China’s microeconomic world, where as the FT reported on Sunday, China’s state-owned SinoSteel, the country’s second largest importer of iron-ore, and a major miner and steel trader (yes, another commodity trader) was “poised to default on its bonds this week, the latest test of whether Beijing is willing to impose market discipline on national champion companies.”
As the FT adds, “Sinosteel, one of an elite club of 112 state groups directly owned by the central government, sent a letter to investors last week warning that its subsidiary lacked the funds to repay principal and interest on Rmb2bn ($315m) in bonds sold in 2010 due on Tuesday.”
“The company’s business has stagnated and cash flow has dried up at headquarters and a portion of subsidiary enterprises,” said the letter, a copy of which circulated on social media on Friday.
Transparency is not Chinese insolvent corporations’ strong suit: “Sinosteel was not available for comment.A person who answered the phone at Sinosteel refused to transfer calls to the company’s media relations department.”
None of this is a surprise: we reported nearly a month ago that more than half of China’s commodity producers are technically insolvent at current commodity prices (a finding which CLSA later used to back into a whopping 8% NPL for the Chinese banking sector), and don’t generate the cash flow to pay even the interest on their debt, let alone fund maturities!
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