Shanxi's 7 industry leaders deep in red, owe equivalent of provincial GDP in 2015
China's debt-hit coal industry can get some temporary relief from the country's debt-for-equity swap program, experts said over the weekend.
Currently, seven major State-owned coal enterprises hold over 1 trillion ($153.8 billion) yuan worth of debts in total, which is the equivalent of the GDP generated by North China's Shanxi Province in 2015, the 21st Century Business Herald reported on Sunday.
The seven companies including Shanxi Coking Coal Group Co and Datong Coal Mine Group are all from Shanxi Province, which is home to much of China's coal industry.
The net profit generated by Shanxi's coal-related industries dipped 46.4 percent year-on-year to 17.97 billion yuan in 2015, data from provincial statistical authorities showed in February.
Since the beginning of April, Shanxi has already witnessed two coal-related SOEs miss scheduled bond payments.
For instance, Shanxi Huayu Energy, an affiliate of the central-government-owned China National Coal Group, defaulted on 638 million yuan in principal and interest due on April 6, according to a statement posted by the Shanghai Clearing House on April 7.
Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said that Shanxi's coal industry is a microcosm of the Chinese coal industry.
Given declining coal prices and great losses amid weak demand, the coal sector in other Chinese provinces and cities is also sluggish, and "the loan defaults are on the rise across the coal industry nationwide," Lin told the Global Times on Sunday.
A report issued by the China National Coal Association (CNCA) on Tuesday said that coal companies in China are facing big losses and are finding it difficult to remain in operation due to overcapacity and declining demand.
In the first two months of the current year, 90 coal companies monitored by the association suffered 2.45 billion yuan in losses in total, an increase of 2.22 billion yuan from the same period of 2015.
The global coal demand is expected to remain constrained due to the "economic transformation in China and environmental policies worldwide," International Energy Agency (IEA) Executive Director Fatih Birol forecast in a report released in December.
The Chinese government has been intensifying efforts to upgrade the coal industry while developing new energy resources such as nuclear and wind to reduce pollution.
The IEA report predicts that Chinese coal demand in 2020 would be 9.8 percent below the level in 2013. Meanwhile, global demand would drop to 5.5 billion tons of coal equivalent in 2020, falling 0.1 percent per year on average.
"At present, the pressure on coal producers has slightly eased due to a pick up in prices, in part thanks to production cuts in Shanxi," Li Chaolin, an energy expert at the China Coal Transportation and Sale Society, told the Global Times on Sunday.
The coal production in Shanxi reached 975.31 million tons in 2015, decreasing 1.39 million tons from the previous year, according to data released by the Shanxi Provincial Commission of Economy and Information Technology in January.
According to the CNCA report on Tuesday, prices of coking coal increased by 10 yuan to 20 yuan per ton in early April from the beginning of the year, but dropped 160 yuan to 180 yuan per ton in comparison to the same period of 2015.
Analysts said that the rising debts of industries plagued by overcapacity such as coal and steel may spur Chinese regulators to facilitate a new round of debt-for-equity swaps, which reportedly was initiated early in 1999.
"The operational pressures on companies will be temporarily relieved if commercial banks are allowed to swap bad debt for equity in defaulting coal mine operators," said Li.
Premier Li Keqiang has previously said that such swap programs can be a way to reduce corporate leverage gradually, the Xinhua New Agency reported on April 11.
However, such a move can also increase the risks for banks, whose interest would be further hurt if coal companies continue to lose money, analysts warned.
The debt-for-equity swap programs cannot fully revive the coal industry, which relies on governments' support in cutting capacity and upgrading production line, said Lin.
In February, the State Council, China's cabinet, issued a guideline in the latest effort to ease overcapacity in coal industry, saying the country would shut down 500 million tons of coal capacity and consolidate another 500 million tons into the hands of fewer but more efficient coal miners over the next three to five years. And, no new coal mines will be approved before 2019, according to the government's website.
