May 15, 2018 / 5:20 AM / 5 months ago

Tianjin halts land sale meant to pay debts of former Bohai Steel unit: sources

BEIJING (Reuters) - The land authority of Tianjin, a port city in North China, has ordered a court to freeze a land auction planned by a creditor of a former unit of the debt-stricken Bohai Steel Group, according to three sources and documents viewed by Reuters.

Bohai Steel and its units have been undergoing a state-backed debt restructuring program since 2016 as the conglomerate struggles with liabilities of around 192 billion yuan ($30.26 billion) in one of the most high-profile failures of a state-owned enterprise in years.

The land up for auction, valued at 238 million yuan, had been seized by National Trust, a creditor of the asset’s owner, Tianjin Metallurgy Steel Wire and Cable Group, a unit of Tianjin Metallurgy Group that defaulted on a trust loan, according to three sources with knowledge of the matter.

Tianjin Metallurgy Group was a subsidiary of Bohai Steel before it was spun off in 2016 under the Tianjin government-directed rescue plan of the indebted conglomerate.

The land sale suspension would raise questions over the local government’s commitment to disposing of assets owned by failing state-owned enterprises. Tianjin has also been under the spotlight for faking economic data and for its slowing growth and investment rates.

In a letter dated May 10 sent by Tianjin’s land resources bureau to Tianjin No.1 Intermediate Court and viewed by Reuters, the land authority “demanded” that the court halt the auction, citing the expiration of a land license.

That immediately forced the legal suspension of the online auction, which had taken National Trust nearly two years to secure, said the three sources, who described the halt as “unfair local government intervention” that harms creditors’ legal rights.

Tianjin Metallurgy Steel Wire and Cable Group is one of two subsidiaries of Tianjin Metallurgy Group that defaulted on two trust loans in 2016, jointly owing nearly 700 million yuan in overdue principal, interest and charges to National Trust so far, the sources said.

National Trust represents 200 retail investors who had bought the debt through trust plans, the sources said.

The Tianjin municipal government and Tianjin Metallurgy Group didn’t immediately respond to faxed requests seeking comment. Reuters could not immediately reach Tianjin No.1 Intermediate Court for comment.

In an earlier letter dated Dec. 15 that was sent to Tianjin’s Communist Party chief, Li Zhonghong, and viewed by Reuters, National Trust said it hoped Tianjin’s leadership could step in as soon as possible, adding that the city’s legal and credit environment has been “severely damaged” because of the case.

The 2016 gross domestic product of Tianjin’s Binhai New Area - an economic zone once touted as China’s future Manhattan - was actually about a third smaller than previously announced, according to a commentary in the official People’s Daily on Jan. 15.

The land sale suspension “will bring a huge irreparable economic loss to investors and cause large social instability,” National Trust wrote in a letter to local courts following the suspension viewed by Reuters.

Retail investors who lost their life savings in the defaulted products have held several protests at the office of the Tianjin government, the sources said.

Reporting By Shu Zhang and Ryan Woo; Editing by Philip McClellan

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