The equivalent of a Public Sector Unit (PSU) in India is a State Owned Enterprise (SOE) in China. And one of them, apparently, is about to default.
A unit of one of the elite club of 112 big enterprises directly owned by the central government, China National Erzhong Group employed a workforce of more than 13,000 in 2012, when it had assets of Rmb25bn. But a slowing economy saddled with industry overcapacity has hobbled the heavy industry group, leading to losses of Rmb8.4bn in 2014.
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“Under the influence of the macroeconomic environment, the demand for the company’s main products remains depressed, and our industry is suffering from severe overcapacity, making competition unusually fierce and causing the price of our products to slide lower,” Erzhong said in a filing late on Monday.
The company suspended trading of Rmb1bn in five-year notes sold in 2012, citing “uncertainty” about whether it could meet a Rmb56.5m ($8.9m) interest payment due next week.
And that’s not all. This is the second state-owned company to default.
But in April Baoding Tianwei Group, which makes power generation equipment, became the first state-owned company to default on bonds when it missed a Rmb86m interest payment. Tianwei is still in bankruptcy and it remains unclear if bond investors will end up taking losses.
Imagine if in India, a company like NTPC defaulted on their debt. But it’s happening here too, in many ways; many state owned Electricity Boards are the biggest borrowers from banks, who have continued to give them money despite not getting any money back because hey, these are state-owned. Well that myth might have to broken in India as well.
It’s all risk-free until you realise the risk just came free.
