Shanghai Chaori Unveils Closely Watched Restructuring Plan
SHANGHAI—Shanghai Chaori Solar Energy Science & Technology Co., which earlier this year became the first Chinese company to default on its domestic corporate bonds, plans to bring in a new controlling shareholder and two bond guarantors.
The bond guarantors will likely honor the bond’s full payments, both in principal and interest.
Developments at Shanghai Chaori—which failed to pay most of its bond interest in March—are being closely watched. Analysts noted that its restructuring will likely set a confusing precedent for other potential defaults in the country’s swelling debt market.
“It’s a very generous package to the bondholders, which is rarely seen in the global markets,” said Ivan Chung, senior vice president at Moody’s Investors Service.
Analysts are concerned that aggressive investors may rush into other cheap and risky bonds on hopes that they will be fully repaid, despite potential default risks.
The financially insolvent maker of solar equipment said Jiangsu Golden Concord and eight other investors will inject 1.46 billion yuan ($237 million) into the company for a controlling share stake. Together with CNY500 million raised by Shanghai Chaori, the money will be used to repay part of the company’s bank loans, bonds, employee salaries and other debts.
Jiangsu Golden Concord is an onshore investment vehicle of Hong Kong-based Golden Concord Holdings Ltd. The parent company is China’s largest power producer that isn’t state owned and is the world’s largest maker of photovoltaic material.
Though the restructuring plan will only pay a small part of the bondholders’ debt, China Great Wall Asset Management Co. and one of the eight financial investors have offered to guarantee that bondholders will be fully repaid.
In March, Shanghai Chaori failed to pay CNY89.8 million in interest on a CNY1 billion, five-year bond that was sold two years ago.
Interest on Shanghai Chaori’s corporate bonds stopped accruing in late June when the restructuring process started and the bonds were deemed to have matured.
China has overtaken the U.S. as the world’s largest issuer of corporate debt, but a slowing economy and weakened financial conditions at its companies are causing overall corporate risk to increase globally, Standard & Poor’s Ratings Services said earlier.
Worries about the risk in China’s corporate debt have intensified in the past year, as borrowing costs spiked periodically. Beijing sought to discourage lending to industries saddled with overcapacity and wanted to discipline banks that were aggressive in risky financing.
Shanghai Chaori may still have to declare a bankruptcy if its restructuring plan fails to get creditor approval. The creditors will vote on the plan on Oct. 23.
