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Guangxi Nonferrous Metals Announced Bankruptcy

After reorganization efforts spanning over half year, Guangxi Nonferrous Metals Group (Guangxi Nonferrous) still announced bankruptcy to become the first bankruptcy liquidation enterprise among Inter-bank market bond issuers.

Since both Guangxi Nonferrous Metals and the administrator failed to put forward reorganization plan draft within six months since the date when the people’s court ruled reorganization, nor did it apply for postponement till now. Guangxi Zhuang Autonomous Region Nanning Municipal Intermediate Court announced to terminate reorganization procedure of Guangxi Nonferrous Metals on September 12, and announced the company’s bankruptcy.

Zhang Xu, Chief Analyst on fixed income of Guangda Securities, told Caixin journalist that, Guangxi Nonferrous Metals Group is the first enterprise involved in bankruptcy liquidation among inter-bank market bond issuers. Previously the bond market had cases of bankruptcy reorganization, but bankruptcy liquidation differs from bankruptcy reorganization, they represent two different endings after the enterprise enters bankruptcy procedure.

The business scope of Guangxi Nonferrous Metals covers operation of state-owned assets, mineral resources prospecting, mining, dressing, smelting, deep processing and scientific research fields, it is a large state-owned exclusively invested enterprise in Guangxi, with a registered capital of 1.16035 billion yuan. Guangxi Nonferrous Metals was once a financing platform for local government, but in 2011 it was adjusted to transfer-out type platform.

The exposure of Guangxi Nonferrous Metals’ payment crisis began in June 2015. Back then the company’s Phase I Medium Term Note experienced uncertainty in payment, but the crisis was soon defused.

However, the Private Placement Note (PPN) “14 Gui Nonferrous PPN003” and “13 Gui Nonferrous PPN001” which were scheduled for maturity and payment on November 5, 2015 and February 27, 2016, again entered payment crisis, and finally breached the contract.

On April 25 this year, the “13 Gui Nonferrous PPN002” due for payment on April 23 also published notice of payment inability. By that time, all bonds issued by Guangxi Nonferrous Metals have matured.

About reasons of payment difficulty, insiders who are close to Guangxi Nonferrous Metals told Caixin journalist that, the main problem is capital. He said: “Because the nonferrous metals industry entered overall downward stage, coupled with limited rate of return of new projects invested by the company in previous years, it finally resulted in deterioration in cash flow.”

On February 22, 2016, Guangxi Nonferrous Metals published notice at the Shanghai Clearing House, saying that: Guangxi Nonferrous Metals is insolvent due to consecutive losses, its production and operation basically bogged down, and is facing multiple lawsuits, its main assets are under application for protective measures or have been frozen by a number of financial institutions.

On December 18, 2015, the company submitted application of bankruptcy reorganization to Nanning Intermediate Court on the ground of inability to pay off mature debts and inadequate company assets to pay off all debts.

By the time of bankruptcy reorganization, Guangxi Nonferrous Metals indeed was seriously trapped in insolvency. According to materials obtained by Caixin journalist, after bankruptcy reorganization checkup audit, total asset of Guangxi Nonferrous Metals was reduced to 4.286 billion yuan, total indebtedness increased to 9.29 billion yuan, owner’s equity was -5.005 billion yuan, debt asset ratio was up to 216.77%. Whereas before the audit, the debt asset ratio was 121.04%.

Despite government subsidy each year, as early as before 2015, Guangxi Nonferrous Metals had recorded loss for three consecutive years. From 2012 to 2014, Guangxi Nonferrous Metals respectively recorded gross income of 22.964 billion yuan, 25.942 billion yuan and 21.136 billion yuan, its total profits were -597 million yuan, -66 million yuan and -1.625 billion yuan respectively.

After entering bankruptcy reorganization procedure, the designated administrator of Guangxi Nonferrous Metals announced at the first creditors meeting on March 18, 2016, that the government must solve the problem within 6 months.

The bankruptcy reorganization administrator issued invitation to over 100 companies to look for strategic investor. One insider of Guangxi Nonferrous Metals disclosed to Caixin journalist: In the end about 5 enterprises came to Guangxi Nonferrous Metals to learn about restructuring intention, and organized survey; but the results failed to satisfy multiple sides, none of the above-mentioned potential buyers put forward any detailed feasible plan.

By June 23, the 6 month bankruptcy reorganization deadline expired, but no restructuring plan was disclosed. The court side did not give ruling immediately, it was not until September 12 that it issued public notice to announce the bankruptcy of Guangxi Nonferrous Metals.

According to provisions of law, after entering bankruptcy liquidation, the company’s assets will be auctioned according to law, the proceeds will be paid off in the sequence of employee salary and compensation money, tax owed by the bankrupt, and common creditor's right. If the bankruptcy assets is inadequate to pay off what is required by the uniform sequence, it will be distributed pro rata.

For creditors, recovery rate is the current focus of attention. Although the liquidation plan has not yet been released, Zhang Xu, Chief Analyst on fixed income of Guangda Securities, told Caixin journalist that, judging from past experience, this time’s recovery rate of bankruptcy liquidation will very likely fall below 20%.