In our weekly report this week, we reported Qixing Aluminum halted both its aluminum and alumina production on March 14th due to financial reasons. Its nameplate capacity is 140Kt, but was running at 70Kt before they curtailed the aluminum production. Just two weeks after they curtailed the aluminum and alumina production, Qixing Group’s supply of capital collapsed.
Qixing Group was founded in 1995 and is located in Shandong Province, Zouping county. The location is very close to Shandong Weiqiao. The deep processing of aluminum is their major business. The group also has businesses related to power communications towers, new materials, finance, real estate and other areas.
Qixing is a large-scale private enterprise. Its holding company is the publicly listed company Shandong Qixing Tower Technology Co., Ltd.
Qixing Group‘s credit exposure is huge. The total amount is up to 7.6 billion yuan, or about US$1.1 billion. Among the creditors, Guosen Securities Co., Ltd. ‘s credit exposure was up to 730 million yuan. The debt accounts for 10.20% of Qixing’s total credit exposure. Guosen is the only securities company among the creditors.
In addition to a number of local banks, there are some financial institutions outside Shandong Province involved in Qixing’s credit exposure. It includes BSB Beijing Branch, with credit exposure of 500 million yuan, accounting for 6.99% of Qixing’s credit exposure. Beijing Pengrun Investment Co., Ltd. credit has exposures of 200 million yuan, Cinda Asset Management Limited credit has exposures of 200 million yuan, etc. We understand there are at least 36 creditors with exposure.
In addition to the banking industry, there are many social debts.
On March 27, Zouping County Government organized a meeting of Qixing Group creditors. From the creditors meeting a Qixing Group Banking Debt Committee was established. The debt committee’s major aim is to prevent the banking institutions from lending, freezing and implementing the relevant assets, and ensuring the successful reorganization of the assets.
Because of the funding chain is broken, Qixing has difficulties to buy raw materials and has shut down its production and it will remain shut for a half year.
Qixing actually used the loans to maintain its daily operations. Most of Qixing Group and Qixing Tower Technology Co., Ltd.’s business is heavy industry. They have big bank loans. The credit situation was complicated by the fact that Qixing has a huge Accounts Receivable backlog, but they were not able to call in the revenue owed to them in time to satisfy bankers.
Since Qixing is unable to repay the huge credit exposure, those parties who did the loan guarantee for Qixing also suffered account seizure, freezing and so on. Some secured enterprises were involved in the proceedings.
Last week, China’s largest cattle farm operator, Huishan Dairy Holdings Company Limited had a similar debt crisis. Its share price collapsed and plunged as much as 91% on March 24th. Huishan dairy’s 70 creditors involved 23 banks and more than 10 financial leasing companies. The financial claims are expected to 12 billion -130 billion yuan (up to the end of September last year). There are some similarities and some differences between these two huge collapses.
Both Qixing and Huishan had capital supply problems rise up within a week. Both involved so many financial institutions and banks. The debt amount is huge in both cases. The two failures so close together will have an impact on China’s financial system. We believe it will cause banks and relevant financial institutions tighten their debt management processes. But where it appears that perhaps some senior executives squandered Huishan’s capital on private real estate plays, there is no sign or rumor of any malpractice by Qixing directors.
In the meantime, it means more smelters might face challenges to service debt. The People’s Bank of China has been reining in liquidity recently, and with so many aluminum companies carry high debt exposure, there will be a lot of pressure in the industry these next few weeks.
Qixing Group’s financial crisis reminds us of Xinjiang Jiarun who have had years of financial problems. Their 150Kt capacity aluminum project was postponed many times last year and they finally announced to start the project this March. How will they run the project smoothly if the bank tightens the debt issue?
Picture source: http://www.qixinggroup.com/lc/lzsc.asp