Even if you fall, you have to cash the bonds first!
Chongqing Energy Investment Group Co., Ltd. (hereinafter referred to as “Chongqing energy investment”) is such a “backbone” enterprise. On April 11, 16 enterprises including Chongqing energy investment applied for bankruptcy reorganization to Chongqing fifth intermediate people’s court.
The total principal and interest paid by domestic and foreign investors in the second half of 2021 exceeded RMB 3.6 billion. At that time, Chongqing energy investment was already entangled in litigation and had huge debt pressure.
Looking back now, Chongqing nengtou’s behavior of gritting its teeth and cashing bonds at that time was quite tragic. Market participants believe that Chongqing can vote to cash bonds in advance and then apply for reorganization, which shows the good intentions of Chongqing state-owned assets system to actively maintain local credit construction.
prepayment preparation
on April 11, 4, according to the Chongqing bankruptcy court, 16 enterprises such as Chongqing energy investment applied for bankruptcy reorganization to the fifth intermediate people’s Court of Chongqing on the grounds that they had bankruptcy reasons but had the value and feasibility of reorganization, and applied for pre reorganization at the same time. At present, the court’s application for the above-mentioned enterprises is under further examination
Among them, Chongqing energy investment, which attracted the most attention, was once one of the famous “eight investments” in Chongqing. It is a large backbone enterprise jointly established by Chongqing construction investment, Chongqing coal group and Chongqing Gas Group Corporation Ltd(600917) group. It is the largest comprehensive energy investment, development and production enterprise in Chongqing, with 100% holding by SASAC.
As the largest coal production enterprise in Chongqing, Chongqing energy investment was once a major bond issuer. According to the reporter’s combing, Chongqing energy investment has historically issued 24 bonds, totaling 25.5 billion yuan. At present, they have all expired and completed cashing. Among them, “20 Yuneng 01” was issued on July 9, 2020 with a term of 2 + 1 years.
On November 23, 2021, Chongqing Energy Investment announced that it would pay the remaining principal and interest of “20 Yuneng 01” in advance on November 23, 2021.
Insiders said that the above-mentioned bonds expired as early as July 9, 2022, but cashed in advance on November 23, 2021. Therefore, it is speculated that the bankruptcy reorganization seems to have been planned long ago.
Not only the bonds in the domestic market were cashed in advance, Chongqing energy investment also redeemed the US dollar bonds issued abroad in advance.
On November 19, 2021, Chongqing Energy Investment announced that it had fully redeemed the outstanding bonds of US $489 million on November 17, 2021. According to the duration financial data, the issuance scale of this bond is US $500 million, the coupon rate is 5.625%, and it will expire on March 18, 2022.
debt crisis has long appeared
From the perspective of public disclosure of information, in recent years, Chongqing energy investment’s main business income has shown a downward trend, its net profit has decreased significantly, and there have been large losses. Moreover, it involves a large number of lawsuits because it is involved in financial lease contract disputes and financial loan contract disputes. As a bond issuing urban investment platform, Chongqing energy investment’s debt crisis has lasted for many years.
In 2015, Chongqing energy investment lost its net profit, and its net bond financing fell sharply in 2016. After 2017, Chongqing energy investment’s debt ratio has been above 70% all year round, and a large part of its debt is related to coal mining business.
In January 2021, Chongqing Municipal People’s government confirmed that 14 coal mines under Chongqing energy investment were closed and withdrawn before the end of June of that year, involving a total coal production capacity of 11.5 million tons. At that time, it was estimated that the net loss and cost of all closed assets disposal would be 17.7 billion yuan.
On March 1, 2021, Chongqing energy investment was unable to repay the due Ping An Bank Co.Ltd(000001) bank acceptance bill of RMB 685 million and China Zheshang Bank Co.Ltd(601916) letter of credit of RMB 230 million, resulting in a default, with a total amount of RMB 915 million.
On March 10, 2021, Fitch lowered the rating of Chongqing energy investment from “BBB” to “Rd” (restrictive default), and lowered the rating of its US $500million priority unsecured notes with an interest rate of 5.625% from “BBB” to “RR5” and “C”. The price of its US dollar bonds fell sharply, and subsequent bond issuance stagnated.
actively maintain regional credit construction
Although it went bankrupt and reorganized, it completed the just exchange in advance. Market participants said that Chongqing energy investment has a positive significance for maintaining the credit of the bond market.
A year ago, the Chongqing municipal government publicly stated that it would focus on preventing the risk of bond default and maintaining the city’s financial ecology. It also proposes to urge and guide enterprises to optimize the debt structure and realize structural leverage reduction through measures such as attracting investment and war, disposing of inefficient and ineffective assets, and strengthening internal operation and management.
On May 24, 2021, the Chongqing municipal government said at the 26th meeting of the Standing Committee of the fifth Municipal People’s Congress that it would prevent and resolve major debt risks and unswervingly take reducing leverage and reducing liabilities as an important measure to fight the battle to prevent and resolve major risks.
First, implement the dual control of enterprise debt scale and asset liability ratio, and dynamically monitor the enterprises whose asset liability ratio exceeds the early warning line and key supervision line.
Second, promote the deepening of reform as a fundamental measure to prevent and resolve debt risks, urge and guide enterprises to optimize the debt structure and realize structural leverage reduction through measures such as attracting investment and war, disposing of inefficient and ineffective assets and strengthening internal operation and management.
The third is to print and distribute the administrative measures for the issuance of bonds by municipal state-owned enterprises, focusing on preventing the risk of bond default and maintaining the city’s financial ecology. By the end of 2020, the asset liability ratio of municipal non-financial state-owned enterprises was 59%, which was 3.2 percentage points lower than that of national local state-owned enterprises (the asset liability ratio of national local state-owned enterprises was 62.2% at the end of December 2020), and the task of the central government on the asset liability ratio of state-owned enterprises was completed ahead of schedule.
The credit rating supervisor of a securities firm said that the underlying credit of the standard bonds of urban investment and weak state-owned enterprises, that is, the credit of local governments, will lead to the secondary yield of other bonds of the whole city and even the whole province once one of them defaults, which will affect the cost of new bond issuance and even the progress of refinancing.
In fact, the impact of debt default of state-owned enterprises on the local credit environment has been learned from the past. In November 2020, the default of Yongmei Group’s debt directly led to the “pause” of the refinancing of state-owned enterprise urban investment in Henan Province for a period of time.
In fact, the credit default of Chongqing energy last year has significantly affected the refinancing cost of local urban investment.
The head of the securities firm’s credit rating said that this incident just reflects the local determination to maintain the reputation of credit bonds and once again strengthens the market’s “belief” in the public bonds of state-owned enterprise urban investment.
“As an important state-owned enterprise in Chongqing, Chongqing energy investment has actively prevented and resolved debt risks, cashed stock bonds in advance, effectively maintained a good regional credit environment, and played a positive exemplary role in dealing with similar problems in other regions of China.” The supervisor stressed.
