HONG KONG -- Tsinghua Unigroup, a technology conglomerate under the umbrella of prominent Beijing science and engineering school Tsinghua University, has warned investors that it could miss another bond payment.
The chipmaker, which already defaulted on an onshore bond last month, is now sending signals to investors holding a $450 million Eurobond and a 5 billion yuan ($765 million) domestic bond for which payments come due Thursday.
Credit Suisse was the sole global coordinator, lead manager and bookrunner for the 6% five-year dollar-denominated Eurobond, which is maturing.
For the three-year onshore bond, Unigroup is due to make a 260 million yuan interest payment. However, it issued a statement on Monday saying that there "exists an uncertainty on making a payment on the interest of the bond due to the company's liquidity being strained" without commenting on the eurobond.
The company's acknowledgment of its tight cash position is raising wider concerns following the default on its 1.3 billion yuan bond on Nov. 15. sent shock waves through the domestic bond market, alongside defaults by notable state-owned enterprises including Huachen Automotive Group and Yongcheng Coal & Electricity Holding Group.
China Chengxin International Credit Rating said in a note issued on Tuesday that Tsinghua Unigroup "has not provided funding arrangements" for the maturing bond, leaving "very large uncertainty" over its redemption.
Noting other debts coming due in early 2021, it downgraded its corporate rating on the company to "B-" from "BBB," already a low rating by the standards of domestic rating agencies.
Two fund managers who have been tracking Unigroup's situation said the company will in all likelihood default on the Eurobond unless a bailout is arranged. They declined to be named as they are not authorized to comment on individual companies.
"We don't own the bond anymore but have been closely following it," said one. "As far as we know, no bondholder meeting has been called and given the company has already defaulted on domestic bonds, we think the offshore bonds may face the same fate."
According to Bondsupermarket, private asking prices for the Eurobond were just below one-third of face value as of Wednesday, or $32.46, after hitting a low of $21.29 at the time of last month's default. The bond was trading above $90 until early September.
The bond is listed on the Hong Kong Stock Exchange, but trading has been suspended since Nov. 18 following the previous default. Unigroup did not immediately respond to a query from Nikkei Asia on the risk it may miss the due date for its Eurobond.
Unigroup is majority owned by Tsinghua University, the alma mater of President Xi Jinping. The company is considered one of the most prominent players in Xi's ambitious "Made in China 2025" project, helping to promote self-sufficiency in microchip production and other high-tech products.
As part of the effort, Zhao Weiguo, Unigroup's chairman -- dubbed an "acquisition maniac" by mainland media -- vowed two years ago, just as the U.S.-China tech rivalry was starting to heat up, that the company would spend $100 billion over 10 years to build a world-class domestic semiconductor industry.
However, the two high profile projects announced then -- a 3D NAND flash memory factory in Chengdu and a DRAM memory chip factory in Chongqing -- have hit significant delays, due to a cash shortage, as reported by Nikkei last month.
Indeed, a close look at Unigroup's most recent financial report points to the company's precarious financial position even prior to its November default. Its capital-to-asset ratio at the end of June was just above 30%, with the company saying that the level of its liabilities were "relatively large" in a disclosure to bond investors.
Its interest-bearing debt then stood at 156.69 billion yuan, with over half of that amount due for redemption within a year. The company's cash on hand stood at just 51.56 billion yuan.
"If the company's operation deteriorates or refinancing channels diminish, bond repayments could be negatively affected," the company warned in its disclosure to bondholders in August.
Additional reporting by Narayanan Somasundaram.
