SHANGHAI Dongbei Special Steel Group Co Ltd has formally entered into a bankruptcy restructuring process following a court filing by one of its creditors, official news agency Xinhua reported on Monday.
Dongbei, owned by the Liaoning provincial government in the country's "rustbelt" northeast, has been at the heart of troubles in China's debt market this year, defaulting on nine separate bonds even as Beijing has vowed to crack down on "zombie" firms with perennial losses and too much debt.
Its first bond default in late March helped trigger a sharp sell-off in the corporate debt markets as investors reassessed the likelihood of bailouts for key provincially-owned state enterprises, especially in coal and steel sectors hobbled by overcapacity.
The firm has also been involved in an extended struggle with creditors over how to restructure its debt, highlighting the challenges in restructuring inefficient, state-owned enterprises, according to Reuters IFR and other media publications.
Dongbei's listed subsidiary Fushun Special Steel had previously said on Sept. 30 that a Chinese court was reviewing an application for such a bankruptcy restructuring.
In a separate exchange filing on Monday, Fushun said that 496.9 million of its shares held by Dongbei had been frozen by the court.
The filing by creditor Alashan Jinzhen Smelting Co Ltd includes Dongbei subsidiaries Dalian Special Steel Co Ltd and Dalian Gaohe Jinbang Xiancun Co Ltd, Xinhua said. In its exchange filing, Fushun said it had not been named in the filing.
A court-managed bankruptcy process will not necessarily end in liquidation, but analysts said the recent court-ordered liquidation of Guangxi Nonferrous Metal Group, another provincially-owned enterprise, sets a worrying precedent.
(Reporting By Nathaniel Taplin; Editing by Kim Coghill)