(Adds context, background on Liaoning province)
BEIJING, April 6 State-owned Dongbei Special
Steel Group Co Ltd said it faces "uncertainties" about paying
interest on medium-term notes, underlining the challenges for
Chinese authorities as they pledge to crack down on "zombie"
companies while containing the risks from a mountain of debt.
Owned by the Liaoning provincial government in the country's
"rustbelt" northeast, Dongbei formally entered into a
bankruptcy restructuring process in October aimed at recovering
a reported $10 billion in debt.
The company has been at the heart of troubles in China's
debt market, defaulting on nine separate bonds last year, and
the province is home to other struggling state steel mills such
the Anshan Group and the Benxi Iron and Steel Group.
Investors have turned jittery about likelihood of bailouts
for key state-owned state enterprises, especially in coal and
steel sectors hobbled by overcapacity. Liaoning's economy shrank
2.5 percent last year, the only Chinese province to see a
The government has promised to close more than 10 million
tonnes of low-grade steel capacity by the end of June this year
as part of its efforts to clean up the sector, even as companies
such as Dongbei Steel continue to default.
Dongbei is due to pay a coupon on April 12 on its 800
million yuan 5.63 percent bond maturing in 2018.
Prices of its bonds have shown some signs of recovery in
recent months, triggered by hopes of a revival plan reported in
local media. That plan was aimed at a return to
profit and a slash in leverage ratio in three years' time.
The bonds still trade at stressed levels of 63 cents on the
dollar, compared with the issue price of 100.
But they are higher than a low of 33 struck in March last
year when it missed a payment on an 800 million yuan short-term
note several days after the group's chairman was found dead in
an apparent suicide.
The statement released via China's foreign exchange trading
platform operator late on Wednesday comes after the company
missed a payment on short-term commercial paper in October last
Profits of Chinese industrial firms surged almost 32 percent
in the first two months of 2017 -- the fastest pace in nearly 6
years -- as prices of commodities from iron ore to steel raced
higher, fueled by a construction boom.
That should give heavy industry more cash flow to service
their debts and reduce leverage -- which is a key priority for
the central government this year -- but some firms saddled with
inefficient capacity and weak local demand continue to struggle.
(Reporting by Beijing newsroom, Josephine Mason and Umesh Desai
in HONG KONG; Editing by Kim Coghill)