In 2019, defaults in Chinese State Owned Enterprises (SOEs) are rising fast. According to New York Times, the value of loans on which Chinese companies have defaulted has surpassed the total for 2018.
Last Tuesday, Tewoo Group Corp., once a Fortune Global 500 company from the northern port city of Tianjin, announced results of its unprecedented debt restructuring. This action will most likely lead to huge losses for its investors, which are mostly government owned institutions.
In November, Tianjin State-owned Capital Investment and Management, Tewoo's offshore debt manager, announced on an investor call that "Tewoo is very likely to default on this paper."
Tewoo is owned by the Tianjin government and operates in multiple industries including infrastructure, logistics, mining, autos and ports. It also has footprints in countries including the U.S., Germany, Japan and Singapore.
The Tewoo case is just one of a long list of Chinese businesses that have run short of cash when it was time to pay back their debts in 2019. According to New York Times, Chinese corporate borrowers have defaulted on nearly $20 billion in loans this year.
On December 5, Peking University Founder Group skipped a $284 million bond payment. This news was widely noticed and shared in China because the company's majority shareholder is the financial arm of Peking University, one of the China's best and oldest universities.
Founder Group, which has investments in securities trading, semiconductors and real estate, cited tightening liquidity and said it was "actively seeking funding" to pay back bondholders.
According to S&P Global (NYSE: SPY), Chinese companies must pay back $90 billion in debt denominated in American dollars, meaning the lenders are global companies and investors outside China. In 2021, an additional $110 billion will come due.
The solutions to Tewoo and Founder Group's cases will provide clear road maps for resolving similar debt crises in the future as the prospect of more failures by state-backed firms looms.
At home, Chinese companies will have to pay $694.6 billion to bondholders next year and $706 billion in 2021.