NEW COVERAGE: Guangxi Financial Investment’s $500M 3.6% 2023 Notes Recover to 85/86.5 Today, March 18, From 80 on Monday Following Assurance of Parent Co. Support

Relevant Documents:
Response to Media Reports (Chinese)
USD notes OC
2020Q3 Results (Chinese)

State-owned nonbank financial company Guangxi Financial Investment Group, or GFIG’s sole offshore $500 million 3.6% notes due Nov. 18, 2023, regained two to three points to 85/86.5 today, March 18, from low 80s yesterday, after the company sent a clarification letter to some investors dismissing certain “unfounded reports” circulated online, according to two buysiders. Continue reading for our Asia Core Credit team's analysis of Guangxi Financial Investment Group and request a trial for access to our coverage of thousands of other stressed/distressed debt situations in the region. 

According to the clarification letter seen by Reorg, GFIG said that its parent company, Guangxi Investment Group, has comprehensive planning, coordination and guidance for all its subsidiaries’ financing needs and will provide support in cash and other forms as needed.

While GFIG is the issuer of the 2023 notes, Guangxi Investment Group provides unconditional and irrevocable guarantee. Both the issuer and the parent guarantor are “closely monitoring movements on both the onshore and offshore bond markets and will adopt measures to stabilize market confidence in a timely manner including market-oriented practices such as bond repurchase, if necessary,” the letter reads.

Also today, GFIG made a statement on its WeChat account refuting a market rumor originating from an online article on WeChat stating that a microfinance subsidiary of GFIG has declared bankruptcy. GFIG said that all its subsidiaries are operating normally, and that none of them has filed for bankruptcy or is under restructuring.

GFIG’s notes, guaranteed by Guangxi Investment, had previously plummeted more than 10 points from the 90s to 80 shortly after the company held an investor call on Monday, March 15. The drop was due to market concern about the company’s ability to service over RMB 38 billion ($5.843 billion) short term debt with an unrestricted cash balance of just RMB 6.585 billion on a standalone basis as of Feb. 28, two buysiders said.

The market concern came after Guangxi Investment’s management failed to provide clarity on its support for GFIG, dodging a question during the call on the possibility of issuing new debt to repay the subsidiaries’ debt and said it expects the subsidiaries to handle its own payment obligations.

Guangxi Investment Group has a strict requirement on debt guarantee, and the amount provided for guarantee will not exceed 50% of the parent company’s consolidated net assets, according to the buysiders who attended the call.

Management said on the call that for notes issued after Guangxi Investment’s acquisition of GFIG in 2019, Guangxi Investment will provide guarantee in accordance with “investor preferences.” As for debt incurred before the acquisition, there is no cross default provision that applies to the parent company, according to the management speaking on the call.

The company told investors that it plans to draw funds from its expected operating revenue of RMB 10 billion, investment returns of RMB 5 billion and unrestricted cash of RMB 6.5 billion. Whatever debt that remains will have to be refinanced, according to the buyside sources.

As of Feb. 28, the company had repaid RMB 6.8 billion debt, with RMB 23.4 billion outstanding. GFIG’s earliest maturities include RMB 800 million private bonds putable on March 28 and RMB 173 million private bonds due on March 30.

Company Background

Incorporated in 2007, GFIG was acquired by Guangxi Investment Group in December 2019, which is ultimately owned by the state-owned assets supervision and administration commission of the Guangxi Zhuang Autonomous Region government. The acquisition was in line with the government’s policies for centralized supervision, optimization and integration of state-owned assets, according to the offshore notes’ offering circular.

The company has 10 subsidiaries that provide micro and small loans, credit guarantees, property insurance, financial leasing and internet finance, the OC shows.

GFIG is rated Ba1 stable by Moody’s, and Guangxi Investment is rated Baa2 stable by Moody’s and BBB by Fitch. The offshore notes are rated Baa2 by Moody’s based on the assumption of a very high level of support from and very high dependence on Guangxi Investment Group in times of need, according to the rating agency.

GFIG guided 2020 financials on the call, reporting total assets of RMB 120.9 billion, up 43.1% over a year earlier. Its net assets went up 41.8% year-over-year to RMB 34.3 billion.

The company posted 2020 operating revenue of RMB 10.64 billion, an increase of RMB 1.63 billion from the year-ago period. The company recorded RMB 954 million net profit for 2020, up 94.7% over the 2019 level.

The company’s finance cost was 6.4% in 2020, down 75 bps from the 2019 level.

At the end of 2020, GFIG obtained RMB 45.8 billion credit lines, of which RMB 35 billion have been drawn down. The company usually raises about RMB 20 billion financing each year, the management guided.

For the third quarter of 2020, GFIG reported RMB 4.74 billion cash inflow from operation, up from RMB 639.6 million in the second quarter, mainly due to an increase of RMB 7.132 billion cash for other operating activities partially offset by an RMB 1.463 billion cash outflow for goods purchase.

The company had RMB 8.44 billion cash and total liabilities of RMB 75.885 billion as of Sept. 30. Below is GFIG's capital structure: