A local government and private lenders are trying to stitch up China’s Feiyue Group. But creditors want their money
By Yan Jiangning, Yang Haipeng and Yang Binbin, Caijing Magazine 13 November 2008
Future prospects for the troubled China Feiyue Group, the country’s largest sewing machine maker, have been clouded by disagreements with creditors, including many that may have been too generous.
The local government in Feiyue’s hometown, Taizhou, launched a rescue effort after a financial crisis emerged in June. But the company’s restructuring plan is still incomplete, and a court handling lawsuits filed by several private lenders has frozen all assets.
Feiyue’s woe also sheds light on a wider crisis in Taizhou, China’s largest base for sewing machine manufacturing. The city is home to around 200 sewing machine manufacturers and parts suppliers, as well as more than 1,000 family factories, hundreds of which supply Feiyue.
Founded by entrepreneur Qiu Jibao in 1986, Feiyue is both the largest manufacturer and exporter of sewing machines in China. It’s considered a flagship enterprise for Zhejiang Province’s Yangtze Delta region.
In past years, Feiyue posted annual sales of up to 1 billion yuan. But overseas demand has dwindled since last year’s subprime credit crisis led to a global economic downturn. According to the Taizhou government, the company’s exports for the first four months this year fell 44 percent compared with the same period last year, to just US$ 18 million.
Meanwhile, Feiyue is swimming in debt. Outstanding loans, including money borrowed from state-owned and commercial banks, have reached 1.7 billion yuan. Its largest lender, Guangdong Development Bank, is owed more than 300 million yuan.
Feiyue has been seeking additional bank loans since the beginning of the year. But the Chinese government’s 2007 decisions to tighten credit controls and reduce export tax rebates complicated these efforts, prompting the company to seek cash from private sources.
The private lenders obliged. Company sources told Caijing up to 100 million yuan was borrowed from these non-bank creditors – at high interest rates.
Feiyue also turned to the Taizhou government for help. City officials responded by agreeing to examine the company’s finances and map out a rescue strategy.
So far, local government mediators have helped Feiyue persuade more than 10 banks and several private lenders to ease loan conditions. The city also allocated tens of million of yuan to cover some of Feiyue’s debt and pay employees. The government’s goal was to maintain operations, industry insiders told Caijing.
But Feiyue’s troubles run deeper. Its limited product structure and inefficient management model have hobbled operations. The company failed to adjust operations in the face of emerging risks. And generous bank lending fueled an energetic overseas expansion program, which led to the creation of 18 subsidiaries in the United States and Europe.
“The money was so easily obtained,” a bank president told Caijing. “The company spent it without thinking.”
Attentiveness apparently ran short among banks loan officers as well. Most lenders were unfamiliar with Feiyue’s operations, since few commercial banks have branches in Taizhou. Many banks that offered credit were merely following the lead of other banks. And the financial breaks keep coming. In addition to the government’s helping hand, a number of local enterprises have offered financial assistance to Feiyue.
Zhang Ruimin, director of the city’s Economic Committee, told Caijing that assets should be reshuffled and overseas assets sold if Feiyue is to survive.
One possible rescue measure may involve inviting investors to buy stakes in the company. Indeed, Caijing has learned that several overseas investment and venture capital funds have shown interest.
But first the court must unfreeze the company’s assets and angry lenders, including several of the 27 private lenders that filed lawsuits, must make peace.
Zhang said the city government plans to help Feiyue persuade lenders to drop their court cases. Unless agreements are reached, he noted, lenders can expect to recoup no more than 20 percent following liquidation.
Meanwhile, the local government is determined to push forward with Feiyue’s restructuring.
“We will not let it go bankrupt,” Zhang told Caijing. “Feiyue still has the capacity to pay debts.”
1 comment:
Patchy Prospects for Sewing Machine Giant
A local government and private lenders are trying to stitch up China’s Feiyue Group. But creditors want their money
By Yan Jiangning, Yang Haipeng and Yang Binbin, Caijing Magazine
13 November 2008
Future prospects for the troubled China Feiyue Group, the country’s largest sewing machine maker, have been clouded by disagreements with creditors, including many that may have been too generous.
The local government in Feiyue’s hometown, Taizhou, launched a rescue effort after a financial crisis emerged in June. But the company’s restructuring plan is still incomplete, and a court handling lawsuits filed by several private lenders has frozen all assets.
Feiyue’s woe also sheds light on a wider crisis in Taizhou, China’s largest base for sewing machine manufacturing. The city is home to around 200 sewing machine manufacturers and parts suppliers, as well as more than 1,000 family factories, hundreds of which supply Feiyue.
Founded by entrepreneur Qiu Jibao in 1986, Feiyue is both the largest manufacturer and exporter of sewing machines in China. It’s considered a flagship enterprise for Zhejiang Province’s Yangtze Delta region.
In past years, Feiyue posted annual sales of up to 1 billion yuan. But overseas demand has dwindled since last year’s subprime credit crisis led to a global economic downturn. According to the Taizhou government, the company’s exports for the first four months this year fell 44 percent compared with the same period last year, to just US$ 18 million.
Meanwhile, Feiyue is swimming in debt. Outstanding loans, including money borrowed from state-owned and commercial banks, have reached 1.7 billion yuan. Its largest lender, Guangdong Development Bank, is owed more than 300 million yuan.
Feiyue has been seeking additional bank loans since the beginning of the year. But the Chinese government’s 2007 decisions to tighten credit controls and reduce export tax rebates complicated these efforts, prompting the company to seek cash from private sources.
The private lenders obliged. Company sources told Caijing up to 100 million yuan was borrowed from these non-bank creditors – at high interest rates.
Feiyue also turned to the Taizhou government for help. City officials responded by agreeing to examine the company’s finances and map out a rescue strategy.
So far, local government mediators have helped Feiyue persuade more than 10 banks and several private lenders to ease loan conditions. The city also allocated tens of million of yuan to cover some of Feiyue’s debt and pay employees. The government’s goal was to maintain operations, industry insiders told Caijing.
But Feiyue’s troubles run deeper. Its limited product structure and inefficient management model have hobbled operations. The company failed to adjust operations in the face of emerging risks. And generous bank lending fueled an energetic overseas expansion program, which led to the creation of 18 subsidiaries in the United States and Europe.
“The money was so easily obtained,” a bank president told Caijing. “The company spent it without thinking.”
Attentiveness apparently ran short among banks loan officers as well. Most lenders were unfamiliar with Feiyue’s operations, since few commercial banks have branches in Taizhou. Many banks that offered credit were merely following the lead of other banks.
And the financial breaks keep coming. In addition to the government’s helping hand, a number of local enterprises have offered financial assistance to Feiyue.
Zhang Ruimin, director of the city’s Economic Committee, told Caijing that assets should be reshuffled and overseas assets sold if Feiyue is to survive.
One possible rescue measure may involve inviting investors to buy stakes in the company. Indeed, Caijing has learned that several overseas investment and venture capital funds have shown interest.
But first the court must unfreeze the company’s assets and angry lenders, including several of the 27 private lenders that filed lawsuits, must make peace.
Zhang said the city government plans to help Feiyue persuade lenders to drop their court cases. Unless agreements are reached, he noted, lenders can expect to recoup no more than 20 percent following liquidation.
Meanwhile, the local government is determined to push forward with Feiyue’s restructuring.
“We will not let it go bankrupt,” Zhang told Caijing. “Feiyue still has the capacity to pay debts.”
Post a Comment