May 11, 2015 / 10:42 AM / in 4 years

UPDATE 1-Winsway defaults on offshore bond, China's third this year

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HONG KONG, May 11 (Reuters) - Chinese coal exporter Winsway Enterprises Holdings became the third company this year to default on an offshore bond in China, the world’s biggest corporate bond market, after failing to make a coupon payment over the weekend.

Winsway said in a stock exchange announcement late on Friday that it had missed a $13.15 million interest payment on its 8.5 percent bonds due in 2016. The interest payment was due on April 8, 2015, and it had to make the payment within a 30-day grace period which expired last week.

The default heightens concerns about worsening credit metrics in the world’s second-largest economy, where the central bank cut interest rates on Sunday to lower companies’ borrowing costs and prop up flagging growth.

“Progressively, companies with credit difficulties will be allowed to default in China and investors should be prepared to lose some of their principal,” said Geoffroy Wallier, managing partner at Orfi Capital, which recently completed fund raising for its second fund.

Property developer Kaisa Group Holdings Ltd defaulted on a dollar-denominated bond when it failed to make a payment last month, while Renhe Commercial Holdings Co’s bond buyback in January was deemed to be a default as the deal was considered a distressed exchange.

Investors do not expect any contagion to the broader market from Winsway’s default, however, as the troubles of the coal sector and at Winsway in particular were well-flagged. The economic slowdown has been particularly hard on the coal business.

The Platts Hard Coking Coal FOB (free-on-board) Australia Index, a coal benchmark, is at a quarter of its level in 2011 when Winsway conducted the $500 million bond sale, which drew a blowout response of $2.2 billion in orders.

A subsequent sector downturn forced a distressed exchange, and in 2013 Winsway partially bought back those bonds at deeply discounted prices of $375 to $475 for every $1,000 of par value.

The distressed exchange was declared a default by S&P and reduced the outstanding size of the bond to $309 million.

Winsway’s stock slumped 14 percent on Monday to a one-month low and its bonds due in 2016, which were already trading at distressed levels, fell another point to 29/31 cents on the dollar. (Reporting by Umesh Desai, Nathaniel Taplin and Shanghai Newsroom; Editing by Edmund Klamann)

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