China Minsheng Investment Group (CMIG), a private company backed by dozens of the biggest Chinese firms and dubbed the “the aircraft carrier of China’s private companies” by local media has partly suspended trading of its bonds after missing a repayment. The case underlines the mounting pressure in the country’s USD11 trillion bond market, said analysts, as a liquidity crunch forces an increasing number of heavily indebted companies to the brink of default. CMIG has stopped taking bids for three of its bonds “due to recent price volatilities”, according to a filing to the Shanghai Stock Exchange.

One of the three bonds had plunged by more than 27% on February 11, as investors sold off amid concerns about CMIG’s financial condition. The company missed a deadline on January 29 to pay back a privately placed bond, worth CNY3 billion. Some of the investors still have not received their money, and CMIG has been negotiating with them for a repayment extension, sources said. The company faces more than CNY10 billion in payments for maturing debts and interest this year, according to data provider WIND. It had assets worth CNY310.9 billion as of the end of last September, but its net profit plunged by nearly 60% to just CNY1.6 billion.

In recent filings CMIG has been alerting investors to risks stemming from cash-flow stress caused by earlier mergers and acquisitions, and an underperformance in the solar energy sector, in which it has heavily invested. “Three billion yuan is a very small amount of money for a company like CMIG. The delay in repayment shows they have bigger problems to deal with,” said Wonnie Chu, Managing Director of fixed income at GaoTeng Global Asset Management. She said the Chinese government is becoming more tolerant of bankruptcies and defaults by companies “as long as it does not create systemic risks”. “There was a time when China tended to bail out all the defaults, but it is not the case since the supply-side reform, when Beijing emphasized ‘quality growth’,” Chu added. The crisis facing CMIG is widely shared by other Chinese private companies, said Ivan Chung, head of Greater China credit research and analysis at Moody’s Investors Service, as reported by the South China Morning Post.

CMIG was set up in 2014 by Chinese veteran banker Dong Wenbiao. Dong, former Chairman of China’s biggest private lender, Minsheng Bank, managed to persuade 59 of the biggest private companies to make initial investments in the company. The combined assets of those firms surpassed CNY1 trillion at the time. The ambition of CMIG was to make investments in strategic industries, with the backing of the country’s strongest entrepreneurs.

The number of corporate bond default cases surged to 119 in 2018, more than triple the 35 cases a year earlier. The value of defaulted bonds also tripled to CNY116.6 billion in 2018 from CNY33.7 billion in 2017, according to the data compiled by Wind.