On July 21, rumors began circulating that the central bank had issued an internal notice to restrict new financing for nearly 10 industries with overcapacity, including steel, cement, coal, chemical fiber, and electrolytic aluminum. The restrictions reportedly cover short-term commercial papers, medium-term notes, convertible bonds, and new corporate bonds. The news sent ripples through the financial markets, especially in the steel sector, which has long struggled with high debt levels and declining profitability.
According to Zhu Xian, a steel industry analyst from Steel Union Information, the primary funding channels for steel companies are stock markets, banking, and bond issuance. In recent years, bond issuances by steel firms have been substantial. If the rumor is true, it could significantly impact the industry, limiting access to capital and forcing companies to reassess their financial strategies.
In the first half of this year, 36 steel companies were either issuing or planning to issue short-term commercial papers, medium-term notes, stocks, and corporate bonds. If all these issues are successful, the total amount could reach around 83.8 billion yuan. This highlights the critical role of debt financing in the sector’s operations.
Data from Steel Union Information also shows that by the end of 2012, large and medium-sized steel enterprises in China had total liabilities of 2.83 trillion yuan—seven times higher than in 2001. The debt-to-asset ratio was as high as 68.3%, up from 49.65% in 2001 and 60.09% in 2008, indicating a steady rise in leverage.
In 2011, 37 steel companies in the overcapacity sectors raised a total of 16.835 billion yuan through short-term vouchers, medium-term notes, public share offerings, and corporate bonds. By 2012, the number of steel companies issuing or planning to issue such instruments increased to 62, with an expected total of 172.92 billion yuan if all were successfully issued. These funds were typically used to repay bank loans, settle debts, purchase raw materials, and support working capital.
Notably, 2012 was described by the Chinese Iron and Steel Industry Association as "the most difficult year since the 21st century." According to data from the China Steel Association, the industry suffered losses for six months during the year, with 23 loss-making enterprises—a 15-company increase compared to the previous year. Total losses reached 28.924 billion yuan, a seven-fold increase from the previous year.
Wang Jianhua, editor-in-chief of “My Steel,†believes that if the rumors are true, many steel companies may be forced to exit the market, but this could ultimately help reduce overcapacity and improve industry efficiency. Zhu Xian also sees potential benefits, suggesting that the move could stabilize steel prices, curb excessive production capacity, and promote the elimination of outdated facilities. However, he emphasized that the actual impact would depend on how the policy is implemented.
It's worth noting that while the central bank's notice is said to have been issued in early July, enforcement appears to be limited at the local level. Despite the rumors, several steel companies still proceeded with their financing plans. For example, Xingtai Steel Co., Ltd. planned to issue 400 million yuan in short-term commercial papers, Panzhihua Iron & Steel Group planned to issue 4.5 billion yuan, and Anshan Iron and Steel Group intended to issue 2 billion yuan in super-short-term bonds.
However, Xingtai Steel recently announced that its planned issuance of 400 million yuan in short-term bonds was delayed due to insufficient subscription. Market volatility caused the bonds to fall below the required interest rate range, prompting the company to reschedule the offering.
As of 5 p.m. on July 22, the central bank had not officially responded to the rumors. The situation remains uncertain, with investors and industry players closely watching for any official clarification.
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