CHINA faces another test in its credit markets this week after a coal firm signaled it may default on its dollar debt.

    Hidili Industry International Development Ltd. is not in a position to repay US$190.6 million in principal and interest due Wednesday on its 8.625 percent notes.

    The mining company, based in the southwestern province of Sichuan, has defaulted on some of its 6 billion yuan (US$947 million) in loans. Hidili has hired UBS Group AG to advise on bond restructuring.

    Defaults at China’s companies, the world’s biggest corporate borrowers, have spread this year amid the weakest economic growth in a quarter century that has hurt commodities and manufacturing.

    Coal trader Winsway Enterprises Holdings Ltd. failed to pay interest on dollar bonds for a second time this year in October this year.

    Defaults are also rising onshore, where manufacturing firms accounted for four of the five major bond failures this year.

    “Given the poor macro backdrop, we are seeing more distress with companies in overcapacity industries,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. “Defaults, especially in the private sector, will only become more common.”

    Commodities companies make up almost half of the 200 Chinese firms with less cash than short-term debt, net losses and contracting revenue, according to filings through June 30 compiled from firms listed on the Shanghai and Shenzhen stock exchanges.

    Hidili has been “experiencing challenging operating conditions as a result of slowing growth” in China’s economy and persistently low commodities prices globally, the Hong Kong-listed firm said in a statement Friday.

    “We tried selling assets to raise cash but we haven’t been very successful,” said Cathy Huang, a spokeswoman for Hidili. “There is no plan yet on how or when we can repay the bonds.”

    As of June 30, Hidili had cash of just 118 million yuan, insufficient to cover total borrowings of 7.1 billion yuan.

    Its 8.625 percent securities, which were issued with a face value of US$400 million in 2010 and have an outstanding amount of US$182.8 million, fell 19.5 cents to trade at 39 cents on the U.S. dollar yesterday. (SD-Agencies)