(Bloomberg) -- China Minsheng Investment Group Corp. once sought to be the nation’s version of JPMorgan Chase & Co. Instead it’s the country’s biggest dollar bond defaulter this year. With $2 billion of debt maturing in 2020, the company is scrambling to raise cash. It’s slashed executive pay as much as 83% and is selling assets.
What’s the company:
One of the largest private investment companies in China, the group was set up by 59 non-state companies in 2014 with a mandate to help Chinese private enterprise expand globally. The company posted 24.7 billion yuan ($3.5 billion) in revenue in the nine months through September 2018, and had 233 billion yuan in total liabilities at that point, according to a prospectus filing. It hasn’t disclosed financial results since.
After a debt-fueled spending spree of more than $4 billion over the past five years, the first signs of trouble appeared in January, when CMIG was late in making payments on the group’s yuan bonds.
The group said in April that cross defaults were triggered on two of its dollar bonds amid missed payments on its affiliate’s debt. A Chinese bank guarantor paid the defaulted $300 million note in June, while the company in October unveiled a plan to repay another $500 million note.
CMIG is now on a mission to free up cash by slashing executive salaries and offloading assets, including selling stakes in property management services company Futurelife and a Tianjin-based unit to service upcoming debt. It expects to receive a portion of these funds in the first quarter of next year, it said in an exchange filing.
The company has 27.7 billion yuan worth of local and offshore bonds outstanding, according to Bloomberg calculations. Half of that comes due in 2020, including the proposed resolution for the $500 million note.
Why does it matter:
Investors are watching CMIG closely for clues on how Chinese authorities respond to the company’s financing troubles. While policy makers have been trying to avoid the moral hazard associated with government-orchestrated bailouts, they face growing pressure to prop up struggling businesses as the economy slows and China’s trade spat with U.S. President Donald Trump rumbles on.
What does the company say:
CMIG has made every effort to promote asset, debt and equity restructuring, a spokesperson said in an emailed comment. “We urge the relevant companies to promote debt service arrangements in accordance with bond maturities, and fully protect the rights and interests of all parties.”
What do ratings companies say:
Chinese rating firm Shanghai Brilliance Credit Rating has maintained CMIG’s AAA label since February 2016. It’s not rated by any of the three main offshore companies.
What are traders watching next:
CMIG has received help from state-owned Great Wall Asset Management Co. since February to alleviate its cash crunch following its delayed yuan bond payments. Traders are waiting to see if the firm makes good on the payment schedule for its $500 million bond. It has proposed paying back a portion of the note in March and June next year.
Onshore, the company has several notes due this month and in December. Traders will be watching closely to see if CMIG repays the principal and coupon.
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--With assistance from Adrian Yim.
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