(Bloomberg) -- A Chinese maker of electronic display panels has missed payment on two of its yuan bonds, a sign that the nation’s private firms continue to face a funding crunch amid an economic slowdown.
Tunghsu Optoelectronic Technology Co., a Shenzhen-listed unit of Tunghsu Group Co. said in a stock exchange announcement on Monday that it failed to repay 1.97 billion yuan ($280 million) principal and interest on a note due to tight liquidity, after its bondholders exercised a put option. It also missed interest payment on another bond.
A Tunghsu Group official as well as an underwriter of the overdue bond said the company is talks with bondholders to extend the repayment deadline by six months. The company official also said the firm was looking to extend the coupon repayment deadline on a separate bond by a period longer than six months.
Bondholders haven’t reached an agreement on the deadline extensions yet, according to the company official and bond underwriter.
Private Sector Problems
The missed payments underscore rising credit risks among Chinese private sector firms, which form the majority of the country’s bond defaulters. Onshore defaults in China excluding Tunghsu were at 110 billion yuan, close to last year’s full-year record of 122 billion yuan, according to data compiled by Bloomberg.
Tunghsu Group’s parent Dongxu Optoelectronic Investment Co. is now planning to sell its 51.46% stake in the company to State-owned Assets Supervision and Administration of Shijiazhuang Municipal Government, according to a statement on the Shenzhen stock exchange. Trading in the shares of Tunghsu Group’s two listed units were halted on Tuesday.
The stake transfer is “highly uncertain” and could constitute a change of control under the group’s guaranteed U.S. dollar notes, S&P Global Ratings said in a note on Tuesday as it downgraded Tunghsu Group’s credit rating to CCC- from B-.
It cited the company’s deteriorating liquidity profile and increasing refinancing pressure for the rating cut. “We believe a default or distressed exchange is highly likely within the next six months, absent significantly favorable changes in Tunghsu’s circumstances,” S&P said.
Tunghsu Group’s dollar bond due 2020 was indicated at around 44 cents on the dollar on Tuesday. Its offering memorandum states that a cross-default will be triggered on the note if the firm’s parent guarantor or any restricted subsidiary fails to repay principal amount of $10 million or more when due.
Tunghsu Group had 50.9 billion yuan cash and cash equivalent assets as of the end of June, and a total liability of 129.1 billion yuan, according to its interim financial results.
(Adds S&P comments and rating change in 7th and 8th paragraphs, updated dollar bond price in penultimate paragraph)
--With assistance from April Ma.
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