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No need for Creditors to China’s Baosteel to worry, whatever S&P says

July 10, 2013

Yesterday S&P downgraded the credit rating of leading Chinese Steel producer Baosteel to BBB-.  Two years ago, in our piece Credit Entropy and the China Credit Syndrome ( we said the following about Baosteel:

God help any company competing with Baoshan Iron and Steel (Baosteel). Untrammelled by petty thoughts such as return on capital employed, and sustaining thanks to access to unlimited cheap credit, the only people who had the right to complain were the long suffering minority shareholders- the stock was at the same level that it was 7 years ago. Inner Mongolia Baosteel Union, a subsidiary of Baosteel, had negative return on capital employed in 2009 after a terrible performance in the previous few years. After a merger in 2008, Handan Iron and Steel overtook Baosteel to become the second largest Chinese steel producer. Like its other compatriots, the company is not overly fanatical about ROCE metrics.

Unlike S&P, we continue to assert that a creditor to Baosteel, particularly its Dim Sum bonds, has no cause to worry.  The Chinese state is not going to allow this entity to default.  


From → Credit Analysis

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