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Posted on : Sep 17, 2012

A growing number of Chinese firms processing non-ferrous metals are failing to repay loans due to lower demand and rising raw material prices, making the sector risky for local banks, Guangzhou's 21st Century Business Herald reports.

In a report from the China Banking Regulatory Commission earlier this year, the non-ferrous metal sector was assigned the third-highest credit risk, following the financing vehicles of local governments and the steel sector.

The head of the risk assessment department at a bank in Yunnan in southwestern China said banks are being stricter with loan applications from the sector and they often granted only short-term credit.

The risk has caused companies to accumulate much larger short-term debt than long-term debt, increasing pressure to repay, the newspaper said. Some companies are being forced to seek new loans just to repay existing ones.

A research survey by Shanghai-based financial data provider Wind found that 39 non-ferrous metal companies had combined long-term debts of 53.5 billion yuan (US$8.4 billion) — including 14.6 billion yuan (US$2.3 billion) set to mature within one year, compared with their short-term debts of 147.9 billion yuan (US$23.4 billion) as of the end of June.

In addition, 15 of the 39 companies have no long-term debt only because of banks' unwillingness to grant such loans.

To ease debt repayment pressure, the newspaper said, non-ferrous metal companies are making increased efforts to secure funding. While negotiating with banks for further loans at lower interest rates to avoid disruptions to their cash flow, the companies are also seeking further funding from their shareholders, the newspaper reported.

In April, Zhuzhou Smelter Group Co received loans from its major shareholder and its company union. The loans totaled 190 million yuan (US$30 million) and were routed through several local banks, the newspaper said.

The companies are also resorting to financial leasing through deals similar to that which Shandong Loften Aluminum Foil recently struck with the leasing arm of China Merchants Bank and Agricultural Bank of China's Qingdao operations, which helped the company secure funding of 260 million yuan (US$41.14 million), the newspaper said.

Source: wantchinatimes

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