Update: Bonds defaults among China's SOEs raise concerns

Bond defaults among China's state-owned enterprises are increasing, raising concerns that this will create headwinds for other firms looking to sell debt. According to data from China Business News, in the first 12 days of April, around 18 bond issues worth a total of ¥17.8bn ($2.8bn) were cancelled, following 62 cancellations worth ¥44.8bn ($7bn) in March. "The continuous fermenting of credit risk has sparked a negative mood among investors," says China Chengxin International Ratings' Lian Haixia. This comes as Chinese steel maker, Dongbei Special Steel, missed a third bond payment, government-owned China Railway Materials asked to suspend trading on its bonds, warning that the business is declining, and Shanxi Huayu Energy, a unit of China National Coal Group, defaulted on ¥638m ($99m) in principal and interest due on 6 April. Furthermore, Zhejiang Shipping Group has revealed that two of its subsidiaries, Wenzhou Shipping and Taizhou Shipping, risk being liquidated due to overdue financial leasing repayments totally ¥36.62m ($5.66m).

Zhejiang Shipping Group has announced that two shipping subsidiaries of the group, Wenzhou Shipping and Taizhou Shipping, have overdue financial leasing repayments totalling RMB36.62m ($5.66m).

The two companies are also unable to repay another RMB4.41m ($682,000) financial leasing payments and RMB16m ($2.47m) in bank loans, which are due for payment by the end of April.

Zhejiang Shipping said the debt crisis is mainly caused by the depressed dry bulk shipping market.

According to the group, the two companies are currently in negotiations with creditors in an effort to solve the debt issue, however, they are still facing the risk of being liquidated if they cannot reach agreements with creditors.

Zhejiang Shipping Group liquidated its subsidiary shipyard Wuzhou Shipyard in December 2015 due to its huge debt burden, making it the first state-run shipyard to go bankrupt.