Chinese banks sue more than 20 steel traders for loan defaults

SHANGHAI Tue Aug 7, 2012 3:36pm IST

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SHANGHAI Aug 7 (Reuters) - Chinese banks are suing more than 20 small and medium-sized steel traders based in Shanghai for defaulting on their loans, in the latest sign that the sector is buckling under slumping prices and poor demand.

China Construction Bank , China Minsheng Banking Corp , Bank of Communications Co Ltd and China Everbright Bank are among the banks that have taken their debtors to court as they sought to recover the millions owed, according to court documents.

Steel traders have been struggling to service their debts as the world's second-largest economy grows at its weakest pace in three years, cutting demand for the material used in construction and cars. Beijing warned banks in April against lending to steel trading firms, worsening the credit crunch.

"We have seen more default cases since late last year. We are now on high alert and are watching our clients closely, particularly the small and medium-sized companies (SMEs)," an official at Minsheng Bank told Reuters, declining to be identified as she was not allowed to speak to the media.

The court documents did not list the amount owing to banks.

In an appeal in June to banks to keep credit lines open, a group of Fujian steel traders based in Shanghai said their loans totalled around 160 billion yuan ($25.10 billion) last year.

Shanghai rebar futures have slumped 18 percent from the year's high hit in April to a record low of 3,631 yuan last week, while rebar inventories in major Chinese cities surged 22 percent from a year earlier to 6.51 million tonnes as of last Friday, Mysteel data showed.

LEGAL ACTION FUTILE

A hearing in Shanghai's Pudong court on Monday was unexpectedly cancelled because both the court and the plaintiff, Minsheng Bank, had been unable to deliver the writ of summon to the owner of the firm, which is owing three million yuan to Minsheng.

Minsheng Bank's spokesperson could not be immediately reached for comment.

Most of the 25 steel trading firms listed in the court documents are small and medium-sized enterprises, some of which do not have their own websites. The rest have a registered capital of 10-to-50 million yuan each.

The case underscores the difficulties banks may encounter in recovering their loans. Recent media reports that state-owned mills, including Chongqing Iron and Steel Co, have also missed deadlines to repay their debts. That suggests the whole sector may be facing growing debt stress.

China's large steel mills have racked up a combined 300 billion yuan in liabilities as of the end of June, and financing costs have risen 37 percent from a year ago, according the China Iron and Steel Association. ($1 = 6.3742 Chinese yuan) (Editing by Ryan Woo)

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