On the evening of November 19, shandong chenming paper, China's leading paper industry company, suddenly announced that "some of the company's debts were overdue and some bank accounts were frozen", resulting in over 70% of the company's production capacity being forced to shut down or limit production due to the market supply and demand contradictions compounded by liquidity tensions.

Affected by the relevant news, shandong chenming paper's AH shares experienced significant declines after opening today. As of the time of publication, the H shares were at 1.27 Hong Kong dollars per share, a drop of over 25%, reaching a daily low of 1.19 Hong Kong dollars per share; the A shares were at 3.37 yuan per share, hitting the limit down.

According to the announcement from shandong chenming paper, as of November 18, the company and its subsidiaries had accumulated overdue debts and interest of 1.82 billion yuan, accounting for 10.91% of the net assets; external guaranteed financing was overdue by 0.574 billion yuan, accounting for 3.44% of the net assets. Under certain creditors' litigation preservation, the court froze 65 accounts of shandong chenming paper and its subsidiaries, with an amount involving 64.837 million yuan.

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

The official website shows that in recent years, shandong chenming conglomerates have successively cooperated and had lines of credit and strategic partnerships with china construction bank corporation, postal savings bank of china, bank of china, cm bank, China Development Bank, Qilu Bank, ping an bank, and Nan Yue Bank. Among them, bank of china, ping an bank, postal savings bank of china, and cm bank have provided credit lines to shandong chenming conglomerates exceeding 10 billion.

A reporter from the Financial Association contacted several banks mentioned above to inquire about the situation. Relevant personnel from the Qingdao branch of cm bank, which has previously served shandong chenming paper, stated that the relevant credit business with chenming conglomerates had been settled long ago, and there is currently no credit cooperation with them.

On November 20, the person in charge from Qilu Bank told the Financial Association that their cooperation with shandong chenming paper was a matter from many years ago. As a local small and medium-sized bank, their main focus is still on serving small and medium-sized enterprises as well as urban and rural residents.

Encountering a paper industry crisis.

According to the official website, Shandong Chenming Paper, a leading papermaking enterprise in China and one of China's top 500 enterprises, was established in 1958. It is a modern large-scale conglomerate mainly engaged in pulp and paper production, with total assets of nearly a hundred billion yuan and an annual pulp and paper production capacity of over 11 million tons. The company's key economic indicators have maintained a leading position in the national industry for more than 20 years.

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

However, in a recent announcement, Shandong Chenming Paper stated that in recent years, the paper industry has seen a concentrated increase in production capacity, resulting in a significant short-term supply-demand imbalance. The sharp drop in prices of some paper products has led to losses. Coupled with some financial institutions reducing loan sizes, the company is facing liquidity constraints and has been unable to repay some debts on time. As a result, some creditors have applied to the court for property preservation, leading to the freezing of some of the company's accounts.

In response to market and liquidity issues, since November, Shandong Chenming Paper has limited production and halted operations at its production bases in Shouguang, Zhanjiang, and Jiangxi, affecting 71.7% of its total production capacity.

On November 20th, a market personnel from a large paper company in Guangdong told Caixin that paper industry demand has indeed been decreasing in the past two years, further exacerbating the situation of oversupply. This year, many paper products, such as tissue paper, have been heavily promoted and engaged in price wars, resulting in very thin profits.

Caixin reporters noted that since October 31st, Shandong Chenming Paper has successively issued announcements regarding financial assistance provided to its subsidiary companies, financial assistance for affiliated transactions, and adjustments of guarantee quotas between its subsidiaries.

Furthermore, on the evening of November 8th, 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 deputy general manager of the company. Taking over as chairman is Hu Changqing, a senior figure who joined Shandong Chenming Paper in 1987.

Former key clients of banks

Chenming Paper disclosed through an announcement that the overdue debt of 1.82 billion involves three categories of creditors, with the largest proportion being accounts payable bills to suppliers at 0.918 billion yuan, financial and non-financial institutions holding balances of 0.42 billion and 0.47 billion respectively.

As a star enterprise in Shandong, Chenming Paper once became a key public relations and investment target for banks.

In addition to the multiple partner banks shown on the official website, Chenming Paper also acquired a stake in the Postal Savings Bank of China. On November 20, a source familiar with the matter in the Guangzhou banking industry told the Caixin media that Chenming Paper has a relatively small credit exposure related to the Postal Savings Bank of China, and has been reducing its loan balance in recent years, with the current balance only being a few billion.

The 2023 annual report of the Postal Savings Bank of China showed that Chenming Paper's Zhanjiang Chenming Pulp and Paper Co., Ltd. holds a 4.46% stake, second only to Yuecai Investment. Regarding related credit exposures, Zhanjiang Chenming and Shandong Chenming Paper Group have 0.308 billion and 0.399 billion respectively.

The official announcement of the Postal Savings Bank of China in Guangdong also stated that the board of directors approved a resolution on April 29, 2024, agreeing to provide Zhanjiang Chenming Pulp and Paper Co., Ltd. and its associated enterprises with a credit exposure limit of 4.42 billion yuan in 2024, valid for one year.