Dongbei Special Steel, a debt-ridden state-owned enterprise backed by the Liaoning provincial government, has started bankruptcy proceedings following the apparent suicide of its former chairman, defaults on 5.8 billion yuan of bonds and fruitless debt-to-equity swap talks with bank creditors. The company’s failed attempts to avoid bankruptcy in the last six months since its first bond default in March showcased an increasingly difficulty for banks and local governments to agree upon which party should bear the brunt of a debt overhang and, more broadly, China’s challenge in dealing with “zombie” state companies and defusing the debt bomb facing the country, according to the South China Morning Post. The bankruptcy application is to “restructure” rather than “liquidate” the company, signaling Dongbei Special Steel is likely to keep operating.
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