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Xiamen Xiangyu Co, one of China’s leading commodity traders, is facing significant challenges following the collapse of Jiangsu Delong Nickel Industry Co, a major client in its metals business.
Key Points:
Parent Group Intervention: Xiamen Xiangyu announced on Monday that its state-owned parent, Xiamen Xiangyu Group Corp, would assume any financial claims related to Jiangsu Delong. This move aims to "protect the interests of the listed company and its investors."
Market Reaction: Shares of Xiangyu fell 4.6% on Monday in Shanghai, reaching their lowest close since 2020, following a 10% drop on Friday due to legal actions initiated by a creditor of Jiangsu Delong.
Jiangsu Delong's Impact: Jiangsu Delong, owned by metals magnate Dai Guofang, has an annual capacity to produce over 10 million tonnes of stainless steel and alloys from its plants in China and Indonesia. However, it is currently struggling due to falling nickel prices.
Exposure and Financial Details:
- Xiangyu’s statement did not disclose the size of the claims to be transferred.
- Jiangsu Delong was Xiangyu's largest metals customer in 2023, with trades valued at 7.1 billion yuan (RM4.56 billion).
- Xiangshui Hengsheng Stainless Steel Casting Co, a sister company of Jiangsu Delong, was the largest metals-trading counterparty for Xiangyu in 2022, with transactions worth 13.7 billion yuan.
Financial Exposure: The parent company will handle pre-payments and receivables related to Jiangsu Delong. Pre-payments refer to partial payments made before delivery, while receivables are debts owed by customers for delivered goods not yet paid for.
Debt and Financial Health: Xiamen Xiangyu increased pre-payments since 2023 to stabilize upstream resources. As of March-end, the company’s total debt stood at 64.6 billion yuan, reflecting a heavy debt burden, according to China Lianhe Credit Rating Co.
Operational Status: Xiangyu stated that Jiangsu Delong's factories mentioned in court documents are under government supervision and continue to operate normally.
The collapse of Jiangsu Delong is the latest in a series of debt crises in China, affecting various sectors as economic growth slows. This situation is closely monitored by stakeholders in the global commodities market due to Dai Guofang's extensive business networks.
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