The news this week of China’s largest corporate bankruptcy – Haixin Iron & Steel Group – amid crashing iron ore and steel prices was followed by analysts noting it “will be followed by others,” as the major flaw of producers of iron ore, the most traded commodity after oil, is they tend to be “over-bullish.” Distressed debt funds are starting to circle in preparation for what they expect to be a bloodbath as Bloomberg reports, bad debts in China are well underestimated because authorities persist in propping up weak companies and bailing out local investors, according to DAC Management, “we’ve yet to see it because if you look at corporate defaults, they keep getting covered by the government. At some point, they can’t cover every single one.” Most worryingly though, as KPMG points out, “when you see restructuring advisers getting hired by SOEs… you know it’s coming.”
“Instead of reorganization efforts conducted by local governments, this is an inevitable trend that China will take more ailing steel mills to the courts to protect creditors,” Xu said by phone from Beijing.
But apart from the entire Steel industry being on the verge of bankruptcy… China is doing great!
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