Financial Services Association, November 20 (Reporter Liang Kezhi) On the evening of November 19, Chenming Paper, a leader in the Chinese paper industry, suddenly announced that “some of the company's debts have been overdue and some bank accounts have been frozen.” Conflicts between supply and demand in the market combined with tight liquidity caused more than 70% of the company's production capacity to stop and limit production.

Affected by related news, Chenming Paper's AH shares all declined significantly after opening today. As of press release, H shares were reported at HK$1.27 per share, down more than 25%, hitting a daily low of HK$1.19 per share; A shares were reported at $3.37 per share, hitting a halt.

According to Chenming Paper's announcement, as of November 18, the company's and subsidiaries' cumulative overdue debt principal and interest was less than 1.82 billion yuan, accounting for 10.91% of net assets; externally guaranteed financing was overdue by 0.574 billion yuan, accounting for 3.44% of net assets. Under the protection of lawsuits by some creditors, the court froze 65 accounts of Chenming Paper and its subsidiaries, involving $64.837 million.

However, the announcement did not reveal which banks or creditors applied to freeze their accounts.

According to the official website, in recent years, Chenming Group has successively granted credit and strategic cooperation with China Construction Bank, Postbank, Bank of China, China Merchants Bank, CDB, Qilu Bank, Ping An Bank, and Bank of Southern Guangdong. Among them, Bank of China, Ping An Bank, Postbank, and China Merchants Bank all granted credit to Chenming Group over 10 billion.

The Financial Services Association reporter contacted several of the banks mentioned above to learn about the situation. A relevant person from the Qingdao branch of China Merchants Bank, which has served Chenming Paper, said that the relevant credit business of Chenming Group has already been settled, and there is currently no relevant credit cooperation with them.

On November 20, the relevant person in charge of Qilu Bank told the Financial Federation that the cooperation with Chenming Paper was many years ago. As a local small to medium bank, the bank mainly serves small and medium-sized enterprises and urban and rural residents.

Encountered the paper industry crisis

According to the official website, Chenming Group is a leading paper enterprise in China, one of the top 500 Chinese enterprises. It was founded in 1958. It is a modern large-scale integrated enterprise group focusing on pulp and paper production, with total assets of nearly 100 billion yuan and an annual pulp and paper production capacity of more than 11 million tons. The main indicators of corporate economic efficiency have maintained a leading position in the same industry in the country for more than 20 years.

At the same time, Chenming Group is also one of the few domestic listed companies in A, B, and H.

However, in an announcement last night, Chenming Paper said that in recent years, new production capacity has been concentrated in the paper industry. Short-term supply and demand conflicts are prominent, and the sharp drop in the prices of some paper products has led to losses. Combined with some financial institutions reducing the size of loans, the company faced tight liquidity and was unable to repay part of its debts as scheduled. Some creditors applied to the court for asset preservation, causing some of the company's accounts to be frozen.

Comprehensive market and liquidity issues. Since November, Chenming Paper has limited and stopped production at production sites in Shouguang, Zhanjiang, and Jiangxi, involving 71.7% of total production capacity.

On November 20, a person from the marketing department of a large paper company in Guangdong told the Financial Federation that the demand side of the paper industry has indeed declined in the past two years, further making the overcapacity situation more prominent. Since this year, many paper products, such as household tissues, have been vigorously promoted and price wars, and profits have been very thin.

A Financial Services Association reporter noticed that since October 31, Chenming Paper has successively issued “Notice on Subsidiaries Providing Financial Assistance to Participating Companies”, “Notice Concerning Financial Assistance and Related Transactions for Participating Companies”, and “Notice Concerning Transfer Guarantee Amounts between Subsidiaries”, etc.

Meanwhile, on the evening of November 8, Chen Hongguo, who had worked at Chenming Paper for 37 years, announced her resignation as chairman, and his wife Li Xueqin also resigned as the company's deputy general manager. Hu Changqing, a veteran who joined Chenming Paper in 1987, took over as chairman.

Former key bank customers

According to Chenming Paper's announcement, the 1.82 billion overdue debt involved three groups of creditors. The largest proportion was the supplier's commercial securities payable of 0.918 billion yuan, with financial institutions and non-financial institutions accounting for 0.42 billion yuan and 0.47 billion respectively.

As a star enterprise in Shandong, Chenming Paper once became the bank's key PR and marketing target.

In addition to a number of partner banks shown on the official website, Chenming Paper also participated in Guangdong Nanyue Bank. On November 20, a person familiar with the Guangzhou banking industry told the Financial Federation that Chenming Paper had little credit exposure in connection with Nanyue Bank and has been reducing its loan balance in recent years. Currently, the balance is only a few hundred million dollars.

According to the 2023 Nanyue Bank Annual Report, Zhanjiang Chenming Pulp & Paper Co., Ltd., a subsidiary of Chenming Paper, holds 4.46% of the shares, second only to Guangdong Finance Investment. In terms of related credit exposure, Zhanjiang Chenming and Shandong Chenming Paper Group were 0.308 billion and 0.399 billion respectively.

According to the official website announcement of Guangdong Nanyue Bank, the bank's board of directors passed a bill on April 29, 2024 agreeing to grant Zhanjiang Chenming Pulp & Paper Co., Ltd. and its related companies a credit exposure limit of 4.42 billion yuan in 2024, which is valid for 1 year.