In China’s third-largest province, Shandong firms are still reeling from liquidity crunch after default scare
- Shandong Ruyi, dubbed the LVMH of China, and Xiwang Group face pressure to repay short-term bond maturities despite refinancing efforts
- Credit risk of private enterprises in the province remains significant with no immediate liquidity relief, S&P Global Ratings says
Private companies in Shandong province could face more troubles amid a liquidity crunch more than two years after a major bond default scare rocked the third-largest regional economy in China, analysts say.
The market’s appetite for riskier credit is also waning amid an economic slowdown, hurting refinancing outlook, as highlighted by recent debt repayment challenges at two prominent local firms Shandong Ruyi and the Xiwang Group.
Private companies in the eastern province have defaulted on 28 bonds worth 13.6 billion yuan (US$1.9 billion) so far this year, Wind data shows. Only their peers in neighbouring Jiangsu have produced more delinquencies among China’s 32 provinces.
The continuing losses show liquidity in Shandong’s regional economy has improved little since March 2017, when aluminium processor Qixing Group defaulted on 7 billion yuan of borrowings. The failure also exposed a web of interlocking credit guarantees and infected dozens of local enterprises, leading to a slew of bankruptcies.
“We foresee no immediate relief to Shandong privately-owned enterprises’ liquidity and refinancing challenges given China’s slowing economy,” analysts led by Li Chang at S&P Global Ratings said in a report published on October 20. Their credit risk remains “significant for the next 12 months.”
In addition, Shandong’s economy is “skewed toward gritty smoke-stack industries where companies are typically highly leveraged,” the S&P analysts wrote.
