(Yicai Global) July 27 -- Creditors of Dongbei Special Steel Group Co., which has defaulted seven times in four months, have dismissed a lead underwriter's proposal for a debt-for-equity swap and are seeking a written commitment from the steelmaker that it will not adopt the idea nor try to evade its financial obligations.
Holders of the company's third tranche of short-term debt heard a revised proposal from the China Development Bank yesterday, Yicai Global has learned. Even if approved, the proposal would not have legal force. It was the third bondholder meeting the CDB had convened.
State-owned Dongbei Special Steel first defaulted on March 28. Chairman Yang Hua hanged himself on March 24, a few days before a CNY800 million short-term debt matured. The Dalian-based firm's total liabilities are approaching almost CNY4.8 billion (USD720 million), including a three-month long bond and short-term commercial paper.
An investor said two other key proposals were not included in the revised draft. The first was to require the National Association of Financial Market Institutional Investors to suspend Liaoning province's issuance of company debt financing instruments and publicly censure the steelmaker. The second was to call for the suspension of financing by the Liaoning government and its enterprises, and suggest that all financial institutions stop buying bonds issued by the provincial government or other local institutions.
A source close to the CDB told Yicai Global that the Liaoning government and Dongbei Special Steel feel under pressure from society, and they did not want to see any action that would damage regional financial stability. Bondholder meetings will be held again should there be no progress made on subsequent solutions.
The CDB, however, said it did not have the power to raise the proposals as the lead underwriter. Regarding the revised proposal, the source also told Yicai Global that underwriters do not have decision-making powers.
Dongbei Special Steel is controlled by the State-Owned Assets Supervision and Administration Commission of Liaoning province, which is its biggest shareholder with a 68.81 percent stake. Heilongjiang province's SASAC and China Orient Asset Management Corp. hold 14.52 percent and 16.67 percent respectively.