Chaori Solar’s Administrators to Draft Restructuring Plan

Aug 19, 2014 8:45 am ET

(Updates with Chaori statement in fifth paragraph.)

Aug. 19 (Bloomberg) -- Chaori Solar Energy Science & Technology Co.’s administrators will draft a restructuring plan and pick a party to lead the reorganization of the company, the first to default in China’s onshore bond market, according to a document distributed to debtholders.

Law firm King & Wood Mallesons and accountants KPMG Huazhen said the restructuring faces challenges including verifying the company’s overseas assets, which have complicated ownership structures, according to the document seen by Bloomberg News. Chaori Vice President Liu Tielong declined to comment when asked today about the document’s details.

Investors are watching Chaori for clues on how China will balance steps to liberalize its financial industry with efforts to maintain market stability. While China has avoided any more note defaults since Chaori, concern has mounted that nonpayments may spread as corporate debt topped that of the U.S. last year to reach $14.2 trillion, Standard & Poor’s estimates.

Chaori only paid 4 million yuan ($651,126) of an 89.8 million yuan coupon due in March on its 2017 bonds, becoming the first company to default on a yuan note onshore. Shanghai marked a milestone in corporate bankruptcy in June when a court accepted a restructuring application for the manufacturer and appointed the two administrators.

Management Plan

Debtholders approved a plan for the administrators to manage and dispose of Chaori’s assets at a meeting yesterday, Ding Guixiang, a bondholder who attended said by phone today. Creditors approved an asset management plan, according to a statement to the Shenzhen Stock Exchange, which didn’t give details. The next meeting will be held in due course, according to the document, which didn’t specify a date.

There are 2,114 people registered with the administrators as holders of the company’s notes, it says. Other creditors include Agricultural Bank of China Ltd., China Construction Bank Corp., China Cinda Asset Management Co. and China Citic Bank Corp., according to the memo.

Chaori had debt of 4.4 billion yuan as of June 26, exceeding the about 3.7 billion yuan book value of its assets, the document shows. The company also has some 1.9 billion yuan of receivables.

Chaori and related group companies started investing in overseas power plants in 2010 and own utility projects in Italy, Greece, the U.S. and Bulgaria, according to the document. The administrators may sell some of those assets at an appropriate time to fund the restructuring, according to the memo.

Manufacturing was restarted at the end of July in order to avoid further depreciation of Chaori’s assets, the document said without specifying at which facilities. The company had halted work at its headquarters plant, it said in a stock exchange filing in April.

--With assistance from Gregory Turk and Helen Sun in Shanghai.