Chinese coal miner Wintime Energy, which is delinquent on Rmb 15 billion ($2.2 billion) of local bonds, is looking to use bonds issued by one of its healthier subsidiaries to pay off existing debt, according to Bloomberg.
This strategy of rolling subsidiaries’ debt together is called substantive consolidation, and has drawn scepticism from investors regarding due diligence and the rights of creditors.
Wintime has proposed including a $500 million issuance by Huachen Energy Co. into a Rmb 70 billion ($10 billion) restructuring package, improving the reliability of the accumulated debt.
“Any attempt to apply the concept in a cowboy fashion, against the interests of the offshore bondholders, will almost certainly hurt investors’ confidence toward debt issued by Chinese entities.”
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