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China State Firm’s $6 Billion Loss Is Among Nation’s Worst Ever

China State Firm’s $6 Billion Loss Is Among Nation’s Worst Ever

Bloomberg News
January 12, 2020, 11:43 PM EST
Qinghai Salt is undergoing a rare court-led debt restructuring
Company is an important test case as defaults in China rise
A barge pumps brine from an evaporation pond operated by Qinghai Salt Lake Industry Co. in Golmud, Qinghai.
A barge pumps brine from an evaporation pond operated by Qinghai Salt Lake Industry Co. in Golmud, Qinghai. Photographer: Qilai Shen/Bloomberg
A distressed Chinese fertilizer company said it may report one of the nation’s biggest-ever annual losses, sparking a slump in its shares and underscoring the challenges faced by some pockets of corporate China as the economy slows.

State-owned Qinghai Salt Lake Industry Co. expects to record a 2019 net loss of as much as 47.2 billion yuan ($6.8 billion) largely due to asset writedowns, an amount that’s nearly twice as big as the company’s market value and one-seventh the size of its home province in northwest China. The stock fell by the 5% daily limit at the open in Shenzhen, before paring its decline to 1.2% at the midday break.

While the loss was larger than some investors expected, it was triggered by an asset disposal plan that may help the company emerge on a stronger financial footing. Qinghai Salt initiated a rare court-led debt restructuring last year, and analysts are watching it closely for clues on the magnitude of losses creditors may have to incur.

“The size of the write-off is certainly larger than expected, but sometimes the scarier the number the less of a burden it will be going forward,” said Shi Junbo, fund manager at Hangzhou Xiyan Asset Management Co. “Once the company gets over this rough patch, there is still hope yet.”

Read more: Chinese Fertilizer Firm Is Test Case for Local Bond Recasts

Shi said the loss is among the biggest he’s ever seen in China. Other notables in recent years include food-delivery giant Meituan Dianping’s 83.3 billion yuan loss the quarter of its 2018 initial public offering and Leshi Internet Information and Technology Corp.’s 13.9 billion yuan loss in 2017.

Qinghai Salt said in an exchange filling on Sunday that 41.7 billion yuan of its expected loss is tied to asset disposals as a result of its bankruptcy restructuring plan. No buyer has emerged for the assets after five rounds of bidding. If a sixth round also fails, a firm backed by local state-owned companies may purchase the assets for 3 billion yuan, Qinghai Salt said.

— With assistance by April Ma

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Harvey Yan

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