China’s Borrowers Have an $890 Billion Problem

Cash-strapped firms are facing a wall of debt due this year. That’s a  problem for industrial companies getting less government help.

Bloomberg
Date: February 24, 2019
By: Anjani Trivedi

I got by with a little help from my friends.

Photographer: Kevin Frayer/Getty Images AsiaPac
Chinese industrial borrowers are strapped for cash, as billions of dollars of debt come due this year. The ones that benefited from Beijing’s largess should be most worried.

Issuers are on the hook for more than 6 trillion yuan 1($890 billion) in 2019, up 15 percent from a year earlier. Companies in sectors including mining and materials, capital goods and real estate make up 4 trillion of the pile – and of that, industrial companies comprise about 60 percent.

 

 

 

 

 

 

 

 

 

For years, this sector largely depended on subsidies to do business, which hampered organic growth. These handouts often show up as lumpy cash, interest-free loans or booked as other operating income. But now the spigots are closing, and these companies are the first to suffer.

With China’s economy sputtering, industrial profits have been dropping in recent months. Constrained financing conditions have squeezed growth and the ability to tap working capital. Cash conversion cycles – a measure of how fast companies are utilizing their inventories and sales to generate cash – are getting longer once again, after peaking in 2016. The largest companies by assets in this sector are running deeper in the red on a free cash flow basis.    [FULL  STORY]

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