Bonds May 08

Yihua Group defaults on 1-billion yuan of bonds

The news this week raises concern on whether Liu Shaoxi is able to pay interest on another 6 billion yuan worth of bonds, as more is due this year

Yihua Group defaults on 1-billion yuan of bonds
A file picture from May 2005 showing Liu Shaoxi, right, chairman of Yihua Enterprise (Group) Co Ltd, attending a meeting in Shantou city, south China's Guangdong province. Xiao yu / Imaginechina via AFP

(ATF) Yihua Group, or the ‘Yihua Department’ as it is known colloquially, has finally hit the point of official censure.

On the afternoon of May 6, the Shanghai Clearing House announced that Yihua Enterprise (Group) Co Ltd was unable to fully pay interest on the "17 Yihua Enterprise MTN001" bonds on the promised interest payment date. So that constituted a breach of contract.

After a series of incidents, trying to extricate itself from this situation by various means, facing a continuous downgrade of ratings, and investigation of its subsidiaries by the China Securities Regulatory Commission, the Yihua Group has finally defaulted.

One-billion-yuan worth of "17 Yihua Enterprise MTN001" bonds were issued on May 2, 2017. They had a coupon rate of 6.5%, an issuance period of 5 years, annual payable interest of 65 million yuan, and a final interest payment date on May 6. The issue is now in default. And all up, Yihua Group has a total of 7 billion yuan in bonds.

This bond is the ‘Yihua Department’s first default credit bond. But it is likely to be causing concern given the Group’s further bond issues.

Shortly before the default of the first bond, on the evening of April 26, Yihua Life (600978.SH), a listed company that is part of the Group, announced that it had received an "Investigation notice" from the China Securities Regulatory Commission. The company was investigated for suspected information disclosure violations.

There is also concern that the Yihua Life Bonds, totalling 1.8 billion yuan, will expire within one year.

Yihua Health, another listed company in the Yihua Group, also has a 200-million-yuan worth of "18 Yijian 01" bonds. And Yihua Group has a domestic bond stock of 4.244 billion yuan, plus US$250 million of foreign debt.

China Chengxin International believes that Yihua Group will face great pressure because of payments it must make this year, and the company's external financing also adds to this situation.

Funds available to pay debts are limited, liquidity is tight and the company's source of debt repayment funds is subject to greater uncertainty. The majority of the equity of Yihua Life and Yihua Health held by the company held by a judicial freeze or pledged to the state, so the company's ability to refinance is greatly restricted.

As his empire sinks, Liu Shaoxi, the flamboyant head of Yihua Group – a self-made man formerly known as the ‘King of wood’ due to his timber industry businesses, and the ‘King of capital’ due to his financial acumen ­– may soon be known as the ‘King of defaults’ if he is unable to extricate himself from this testing predicament.

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