Yongcheng Coal defaulted on ¥1B while its books showed ¥46.9B cash — AAA to BB in one day

On 10 November 2020, Yongcheng Coal & Electricity, 96% owned by Henan Energy and ultimately by the Henan state assets regulator, announced it could not repay principal and interest of ¥1.032 billion on its 270-day commercial paper 20 Yongmei SCP003 — its first-ever default. The paper was issued in February 2020 at 4.39%, and rating agency China Chengxin International still carried the company at AAA the day before.

The timing was damning. On 22 October the company had sold a ¥1 billion three-year note; on 26 October it announced the proceeds would repay another bond maturing 30 October. Its Q3 report showed ¥46.97 billion of monetary funds against total assets of ¥172.65 billion. Two days after defaulting it said it also could not pay about ¥2 billion due on two more bonds.

The market repriced everything at once: 18 Yongmei MTN001 fell 94.6% to ¥5 per ¥100 of face value, and a cancellation wave of more than ¥100 billion in new issues followed within a month. NAFMII, the interbank self-regulator, opened probes into Haitong Securities for suspected market manipulation around the October issue, into lead underwriters Industrial Bank, Everbright Bank and Zhongyuan Bank, into the rater and into auditor Xigema. Vice-Premier Liu He chaired a financial stability meeting that pledged zero tolerance.

Regulators later concluded Yongcheng had inflated reported monetary funds by ¥86.1 billion across disclosure periods. Creditors eventually took 50% cash and 50% extension, and in November 2023 the parent early-redeemed ¥4.855 billion across its last 10 bonds, clearing every outstanding issue three years after the shock.

Two bond prices fell over 90%; more than ¥100B of new issues were cancelled within a month; Henan issuers were shut out of credit markets for months

The rating failed: CCXI kept the AAA even though the company depended on refinancing to roll its debt, and cut to BB only on default day.

It was borrowing new to repay old: the 22 October note was reassigned within four days to service a bond due 30 October, so solvency depended on market access, not operations.

Reported cash was partly fiction: the later finding of ¥86.1 billion in inflated monetary funds means the ¥46.9 billion balance misled every investor who read it.

Investors priced a state guarantee, not fundamentals: an SOE controlled by Henan SASAC was assumed unable to default, so nobody tested the cash balance until it failed.

Intermediary incentives overrode disclosure duties: the underwriter of the fresh issue was probed for suspected market manipulation around the default.

Markets price trust in disclosure, not ratings. One AAA issuer proving its reported cash was fiction repriced every SOE bond from its province — disclosure fraud is systemic risk.

CCXI cut Yongcheng and its parent from AAA to BB on default day. NAFMII disciplined Haitong Securities, Industrial Bank, Everbright Bank, Zhongyuan Bank, Donghai Fund, the rater CCXI and auditor Xigema over the episode. Henan province set up a ¥30 billion credit-support fund and coordinated ¥7 billion to restore Henan Energy; creditors accepted 50% cash and 50% extension. In November 2023 the group early-redeemed ¥4.855 billion across 10 bonds, clearing all outstanding debt, and Henan credit issuance rebounded 37.55% year on year in the first three quarters of 2023.