Mar 19, 2019 (China Knowledge) - Two more companies in China’s Shandong province have entered bankruptcy proceedings as the region’s industrial debt crisis worsens.
Cracks started appearing in Shandong province’s industrial sector last year after a number of local companies were hit with a debt crisis stemming from mutual guarantees companies in the region had taken on for each other to obtain loans and credit for banks.
The result of this web of mutual guarantees was that any single missed repayment on loans and bonds would result in a chain reaction in the market resulting in cash-flow problems for many companies.
The two latest casualties of this web of mutual guarantees are steel-cord manufacturer Shandong SNTON Group and Eastar Holding Group. In the two companies’ filing to the National Enterprise Bankruptcy Information Disclosure Platform, SNTON had RMB 8.6 billion worth of assets with a debt-to-asset ratio of 181.3% while Eastar had assets of RMB 5.9 billion and a debt-to-asset ratio of 167%.
The filings of the two companies have since been accepted with the court ruling them incapable of repaying their debts. The two companies are set to undergo restructuring as SNTON still possesses fixed assets such as facilities while Eastar still has its full industrial chain intact and remains a market leader in terms of its products and business network.
While bankruptcy proceedings help the local economy in the short-run, it may hurt bond investors in the long-run as it may reduce their confidence in buying corporate bonds as such proceedings can be opaque and may place investors on the losing end.
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