(Yicai Global) May 4 -- Private Chinese conglomerate DunAn Holding Group Co. has appealed to local authorities and banks for a bailout amid mounting debts totaling CNY45 billion (USD7 billion).
The Hangzhou-based firm issued the distress call after a listed unit was unable to raise enough funds through a bond sales, and it has turned to the local government for temporary liquidity support.
The firm is mainly engaged in the manufacturing of precision and advanced equipment and civilian explosives, wind and solar power generation, magnesium and magnesium alloy materials supply, as well as salmon farming, landscape design and flower cultivation.
Zhejiang Provincial Financial Service Office has held talks with the firm to discuss possible solutions to help it solve its debt problems by providing bond financing and bank loans two possible options. Representatives from the local office of China’s central bank, the China Banking Regulatory Commission and banks attended the meeting.
“We [the company] humbly request that the provincial government coordinate the matter and press for the implementation of the relevant measures for resolving the crisis as quickly as possible,” states a document seen by Yicai Global, signed by DunAn.
DunAn currently holds CNY45 billion in interest-bearing liabilities, and except for CNY12 billion of unpaid bonds, the vast majority of bank and non-bank loans are secured within Zhejiang province, according to the document.
The market started to experience a liquidity tightening in the second half of last year, making it hard for companies backed by heavy bond financing such as DunAn to raise money by issuing bonds due to soaring financing costs. DunAn used a huge amount of its own funds, leading to a serious liquidity crunch, the document said when explaining the origins of the firm’s crisis.
“Given recent unfavorable bond market conditions, the group canceled a scheduled bond sale last month, prompting short-term liquidity pressure. Group leaders take the problem seriously and have reported it to the provincial government, thus attracting public attention,” said Guo Shuguang, chairman of Zhejiang DunAn New Energy Co.
“Banks and other financial institutions all made it clear that they will help DunAn get through this,” Guo said.
Sustained business expansion has brought heavy capital pressure on DunAn. The aggressive diversified expansion will put heavy strains on a firm’s funding sources and lead to a high debt-to-asset ratio, said Wu Qi, a senior researcher at Pangoal Institution, a China-based public policy think tank.
As China pushes ahead with its deleveraging campaign, highly leveraged companies are unable to access banks loans or raise money through bonds and have to use their own money, which could lead to capital chain rupture and even debt crisis, Wu added.
Editor: William Clegg