NEARLY a year after convincing lenders to waive covenant breaches, China Huiyuan Juice Group is once again sounding the alarm over loans to China’s private sector with its failure to repay a HK$1 billion (US$128 million) convertible bond (CB) that came due last month.

Nonpayment of the privately placed CB should trigger a cross-default on Huiyuan Juice’s US$200 million 6.5-percent senior notes due 2020 as well as a €180 million (US$204 million) three-year facility signed in March 2017. The first loan installment of €60 million is due in late March.

Lenders are braced for the worst after the company said Feb. 1 it planned to hire legal and financial advisers as it explores ways to fund its repayment obligations. Five board members, including representatives of the CB investor and major shareholder SAIF Partners, and the company’s CEO have stepped down this year.

“We expect our credit committee to be stricter than usual in approving future applications for other Chinese privately owned enterprises (POEs) if Huiyuan Juice misses the first payment,” said one banker in Hong Kong.

The mood among lenders is somber after a spate of defaults and corporate governance issues relating to Chinese POEs in recent months.

Orange juice maker Summi (Group) Holdings, another POE, is in discussions with banks after failing to meet a Nov. 5 deadline for mandatory prepayment of a US$80 million three-year loan signed in August 2016. The company’s net profit for the year ended June 30, 2018 plunged 83 percent to 11.56 million yuan (US$1.71 million) from a year earlier.

Last month, Shenzhen-listed Kangde Xin Composite Material Group, a privately owned manufacturer of high-polymer materials, defaulted on short-term bonds totaling 1.5 billion yuan. The company’s debut US$200 million three-year loan launched last May was cancelled late last year following a suspension in trading in Kangde’s shares from early June.

“Some Taiwanese, Korean and other small banks will prefer State-owned enterprises [rather than POEs] but it’s partly because they have a small book. Bigger banks will continue to be selective and only look at large Chinese POEs that are leaders in their industries and have good financials and growth prospects,” said another banker at a Chinese lender in Hong Kong.

That approach has not always guaranteed safety. China Hui shan Dairy Holdings, once the country’s largest integrated dairy farm, and China Hong qiao Group, the world’s largest aluminum producer, have both given lenders a rocky ride.

Provisional liquidators have been appointed for Huishan Dairy, which failed to repay loans. Hongqiao Group was the target of short sellers in early 2017 and was late to issue some financial statements and news of changes in auditors. It subsequently introduced State-owned CITIC Group as a strategic investor in November that year and successfully raised US$450 million from a 363-day offshore bond last April.

Meanwhile, there seems to be no respite for the lenders to Huiyuan Juice. Eleven months after it disclosed previously unreported intercompany loans, Huiyuan Juice’s struggles continue. Last July, it sought another waiver asking for an extension until the end of November to publish its 2017 annual results and resume trading in its shares, after failing to meet an earlier June 29 deadline.

Bank of China (Hong Kong) was the mandated lead arranger and bookrunner of the €180 million term loan, which attracted BoC Macao branch, China Minsheng Banking Corp., Chiyu Banking Corp. and Nanyang Commercial Bank.

(SD-Agencies)