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Steel

China's Dongbei Special Steel in new default as debt note matures

SHANGHAI, July 12 (Reuters) - Unlisted Dongbei Special Steel Group Co Ltd, which defaulted on several bonds earlier in 2016, has defaulted on a private placement note which matured Monday, it said on Tuesday.

The Dalian-based steel firm posted a statement on the Shanghai clearinghouse’s website on Tuesday disclosing the default on its 300 million yuan ($44.84 million) three-year private placement note.

It cited tight cash flow and lack of access to alternative financing as the reason for the default.

After many years where most Chinese bonds were assumed to have implicit state backing which would prevent formal defaults, Chinese firms have increasingly missed payments on bonds over the past year and a half.

In April, defaults by Dongbei and other state-owned firms contributed to a sharp sell-off in the bond market, although investors have returned over the past two months.

Yields on AA-rated five-year Chinese bonds, which spiked by over 60 basis points in April as bond prices fell, have since recovered around half that ground.

But with Chinese industry still struggling and Beijing targeting sectors burdened by overcapacity including steel and coal, analysts say more defaults can be expected. ($1 = 6.6903 Chinese yuan renminbi) (Reporting By Nathaniel Taplin; Editing by Eric Meijer)

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