CMIG Debt Crisis Triggers RMB 8.7B Default at Dalian Developer Yida China

Hong Kong-listed Yida China announced on 22 April that a financial crisis at its parent company had left it facing a default on loans with an outstanding principal of RMB 8.75 billion ($1.3 billion), with the developer saying it has yet to reach an agreement with creditors to resolve its outstanding debts.

The announcement to the stock exchange was the second time this month that the business park developer had warned of defaults, with its reported liabilities having risen from RMB 4.28 billion at the time of the earlier statement on April 10th.

The company’s financial failure, which was triggered by parent firm China Minsheng Investment Group’s (CMIG) own defaults, has made its RMB 8.75 billion loan balance immediately payable, although Yida, which is the parent company of Dalian Software Park, says it remains hopeful that it can reach a settlement with its creditors

Putting Faith in Financial Performance

In the new statement, Yida representatives admitted to facing difficulties renegotiating their loans, “As stated in the Previous Announcement, the Group had used its best endeavours to communicate and negotiate with the relevant lenders to obtain a waiver, and whilst the Group has not been able to obtain waivers from the respective lenders as at the date of this announcement.”

The company stressed, however, that its financial position was stable, which gave it confidence in its ability to reach an agreement with its creditors.

Yida’s annual report showed that the company achieved RMB 8.54 billion in contracted sales in 2018, representing an increase of 17.5 percent year-on-year.  The developer had about RMB 17.02 billion in debt at year-end, with the company’s net liability ratio standing at 128.6 percent.

At the time, Yida China had RMB 1.8 billion in cash on hand and short-term borrowings due within one year stood at RMB 7.65 billion, of which RMB 4.94 billion has since been repaid or renewed, according to the company. Another RMB 490 million of debit is secured by deposits of an equivalent amount and the company says it has sufficient collateral to balance the remaining amount of RMB 2.22 billion to be repaid before December 31, 2019.

Investment Group Failure Brings Chain Reaction

Yida’s parent firm, CMIG, shocked China’s financial world at the end of January, when it missed a deadline to repay a RMB 3 billion bond.

The investment firm, which reported RMB 310 billion in assets under management at the end of last year has yet to resolve its financial crisis, with CMIG announcing to the Hong Kong stock exchange on 18 April that it has worked together with creditors and shareholders to establish a committee to try to stabilise the failing firm.

In April the company announced that RMB 2.96 billion of its assets have been frozen by creditors, a situation which Yida said in its April 10th statement had helped lead to its own financial crisis.

Yida Problems Trigger More CMIG Defaults

Following Yida’s 10 April initial announcement of its default, CMIG found itself in deeper trouble, with that financial shortfall triggering a new $800 million crisis for the parent firm.

Yida’s announcement had triggered a cross-default clause in two sets of offshore bonds issued by CMIG, a $300 million set of notes due in 2020 and a $500 million issue due in 2019, the investment firm said in an announcement to the Hong Kong exchange.

CMIG, which was founded by Dong Wenbiao, the former chairman of China Minsheng Bank was formed in 2014 with the backing of 59 of China’s most prominent non-state-owned companies, but in the last two years it ran into financial challenges after tighter regulation limited the activity of shadow banks, and traditional banks cut back on credit.

By September last year, CMIG was struggling to pay off an estimated RMB 233 billion in total liabilities.

Biggest Shareholder Becomes Largest Liability

As part of its pre-crisis acquisition spree, CMIG had acquired a 53.02 percent stake in Yida China for HK$3.014 billion in November 2016, and later boosted that stake to 62.4 percent.

In stressing its financial health in its latest statement, Yida noted that that none of its loans were guaranteed by CMIG, and added that the company’s operations remain independent from its parent. The company said that it believes that the risk of lenders demanding immediate repayment of Yida’s debts is limited.

In February, CMIG declared that it was going through a “strategic transformation” and, as part of its new survival strategy sold its 50 percent stake in a mixed-use project in Shanghai’s South Bund area to Greenland Group for RMB 12 billion ($1.77 billion) as it scrambled for cash.