Financial Associated Press, November 19th (Reporter Luo Yichen) After nearly three years of declining prosperity, the deep adjustment of the papermaking industry may have just begun. This evening, the former leader Shandong Chenming Paper (000488.SZ) issued an unexpected announcement: due to sluggish papermaking operations, the company is facing overdue debts of up to 2.394 billion yuan, resulting in about 71.7% of its production capacity being forced to halt or reduce.

In the announcement, Shandong Chenming Paper stated that as of November 18, the cumulative overdue principal and interest amount of debts for the company and its subsidiaries totaled 1.82 billion yuan, accounting for 10.91% of the company's most recent audited net assets. The company provides joint liability guarantees for financing related to subsidiaries, with the corresponding overdue amount being 0.574 billion yuan, approximately 3.44% of the company's most recent audited net assets.

The large-scale overdue debts have also resulted in the company's bank accounts being frozen. As of November 18, the total number of bank accounts frozen for the company and its subsidiaries was 65, accounting for 8.47% of the total number of bank accounts. The total amount frozen in these bank accounts amounted to 64.837 million yuan, accounting for 0.39% of the company's most recent audited net assets, of which 51 bank accounts were seized and frozen by the court due to reasons such as overdue commercial bills and debt disputes.

The tight cash flow has already impacted the company's normal operations. Entering November, Shandong Chenming Paper has limited or suspended production at some production bases. As of today, one white card paper production line, one cultural paper production line, and one copper plate paper production line in the Shouguang base, chemical pulp production line, one cultural paper production line, and one white card paper production line in the Zhanjiang base, and temporary production halt at the Jiangxi and Jilin bases have led to a suspension of pulp and paper production capacity of 7.03 million tons, accounting for 71.7% of the total capacity, affecting monthly pulp and paper output by approximately 0.58 million tons and paper sales by approximately 0.35 million tons.

Apart from financial pressure, Shandong Chenming Paper mentioned that the halting and limiting of production is also intended to reduce losses. It is reported that the company's main product, white card paper, has performed the worst during this round of downturn in the papermaking industry. Under the persistent pressure of oversupply, the profits from white card paper have shown little improvement, causing continuous profit pressure on paper companies. However, entering the Q4 consumption peak season, the recent market for white card paper has seen some recovery, and the production gap left by Shandong Chenming Paper may help further boost the prices. Among the major listed companies, Shandong Bohui Paper Industrial (600966.SH) and Wuzhou Special Paper Group (605007.SH) lead in white card paper production.

It is reported that Shandong Chenming Paper's current operational crisis has been evident since last year. In 2023, the company reported losses for four consecutive quarters, totaling a loss of 1.281 billion yuan for the year. Although the company attributes the reasons to the downturn in the papermaking industry, most comparable companies during the same period only experienced performance shrinkage but still remained profitable and did not face large-scale losses.

In fact, unlike most papermaking companies, Shandong Chenming Paper has a substantial financing lease business apart from its main operations. In the 2023 annual report, then-director Chen Hongguo stated that the company is streamlining and reducing non-core businesses, with the scale of financing lease business compressed by over 20 billion from its peak, and will focus on the pulping and papermaking main business. By the end of 2023, the balance of Shandong Chenming's leasing had decreased to 4.8 billion yuan. The company stated in its annual report that due to the impact of the macroeconomic environment, some clients have faced short-term operational difficulties, and some accounts receivable from financing leases have become overdue, with overdue principal amounting to 1.44 billion yuan, provisioned for 0.43 billion yuan, with a provision coverage ratio of 29.9%, and some assets have been seized through litigation. The overall risk is controllable.

However, just a few months after Chen Hongguo proposed to focus on the papermaking main business, on November 8 of this year, Chen Hongguo, who had worked at shandong chenming paper for 37 years, announced his resignation as chairman. His wife, Li Xueqin, also resigned from her position as vice president of the company. Veteran Hu Changqing took over as chairman, and he proposed the slogan "New Shandong Chenming, New Start."