Bohai Steel's debt restructure first major test of China's supply-side reforms: S&P

HONG KONG - Recent debt restructuring at Bohai Steel Group and lack of a Government bail-out of its creditors may signal China's desire to develop a test case for other loss-making state-owned enterprises (SOEs) and governments to follow, according to ratings agency Standard & Poor’s.

"We see a shift in the Central Government's policy towards bail-outs. The lack of Government support for Bohai Steel's creditors could lead to greater credit risk pricing for weak companies operating in industries with excess capacity," says S&P credit analyst, Christopher Lee.

The debt restructuring is the biggest of an SOE in recent years. According to Caixin, a Chinese business news portal, Bohai Steel has formed a creditors’ committee to co-ordinate repayment of about RMB192
billion (US$29.6 billion).

The Tianjin Government will reportedly coordinate with creditors, which could involve deferment of interest payment and extension of debt repayment to facilitate plant closures and asset restructuring, S&P says.

The City Government's asset management company may also lend a hand by acquiring delinquent loans. Being a municipality, Tianjin is directly supervised by the Central Government.

The timing of the debt restructuring is not coincidental, S&P says, coming less than a week after conclusion of the National People's Congress and the Chinese People's Political Consultative Conference meetings, where deputies approve the budget and endorse priorities for 2016.

The reform of loss-making enterprises is pressing as China battles with excess capacity in several industries, including steel, mining, glass, cement, and shipbuilding. www.standardandpoors.com (ATI).