HONG KONG -- Yongcheng Coal and Electricity Holding Group, a state-owned miner in Henan Province, failed to repay the principal and the interest due Monday on two closely watched bonds, in the latest sign of trouble in China's fixed-income market.
The company, which had defaulted on a debt obligation two weeks ago, missed its latest payment after Vice Premier Liu He called a meeting of Financial Stability and Development Committee in Beijing on Saturday. The state-owned Xinhua reported on Sunday that the gathering called to "safeguard the stability of the bond market."
Yongcheng was unable to redeem two 1 billion yuan ($152 million) short-term notes with maturities of 210 days and 270 days, respectively, according to an announcement by the company and the bookrunners.
The company blamed the missed payments on a "liquidity problem" caused by the coronavirus pandemic, which has strained its business, and the recent turmoil that made its "refinancing in the bond market difficult."
Yongcheng's default on Nov. 10 is widely seen as a major turning point in China's bond market, following that of Huachen Automotive Group and chip producer Tsinghua Unigroup.
Chang Li, a China country specialist at S&P Global Ratings, was quoted last week saying Yongcheng's default "surprised the market because it indicated the local government's attitude to provide support had reversed."
Huachen, BMW's partner in China and owned by the Liaoning provincial government, entered bankruptcy restructuring on Friday.
Yongcheng said in a statement Monday that it will strive to reach either an extension of the repayment term or some form of a resettlement with the investors. The company also vowed to seek external financing, dispose assets, hold down expenses, and use various other methods to repay the debt.
Before dealing with the investors affected by the latest missed repayments, the company and the bookrunners called a creditors' meeting for bondholders in the Nov. 10 default on Monday in Zhengzhou, the capital city of Henan Province. According to Reuters, the two bookrunners of this issue -- China Everbright Bank and Zhongyuan Bank -- put forward a plan for the company to pay half of the 1 billion yuan principal first, while the rest to be put off for 270 days. The plan had to be agreed by all bondholders in order to be valid. The outcome of the meeting is to be announced on Tuesday evening.
Yongcheng's credit blowup has triggered other problems.
The credit profile of its parent Henan Energy and Chemical Industry Group, one of the largest state-owned companies in the province, is now under scrutiny for its cross-protection clauses with Yongcheng on outstanding bonds. Yongcheng is a major part of its parent's portfolio, accounting for 59.9% of total assets, 26.0% of overall revenue, and 486% of pretax profit of its parent in 2019.
The case has drawn the attention of the central authorities. Prior to the meeting called by the vice premier on Saturday, the National Association of Financial Market Institutional Investors, a group under the jurisdiction of the People's Bank of China, announced Thursday that it is investigating the financial institutions, credit agency and accountants involved in the Yongcheng issue.
China Chengxin International Credit Rating, a local rating agency, had the highest "AAA" rating for Yongcheng until the default. The ratings of the company and its securities were dragged down below investment grade to "BB" a day after the first default.