China firm on brink of bankruptcy rallies 51%

Bloomberg

An insolvency case in a remote city on the Tibetan Plateau shows how in China, most outcomes are better than getting booted out of the stock market.
A local court in Qinghai — a huge and sparsely-populated province that’s home to the country’s largest lake — threw a lifeline to Qinghai Salt Lake Industry Co when it accepted a creditor’s request to restructure the firm. Stock investors took it as a sign the struggling state-owned potash producer will survive: the shares are up 51% since the petition was filed in August.
On Tuesday the stock closed up by the 5% daily limit imposed by the Shenzhen exchange.
It’s an example of how even a potentially dilutive deal — like a debt-to-equity swap — would be positively received by shareholders. Shenzhen-listed Qinghai Salt Lake is still a serious candidate for delisting after reporting net losses for two straight years, and the terms of its restructuring have yet to be announced.
“Stock traders are encouraged by the company’s progress on resolving its debt problems,” said Jiang Liangqing, a money manager at Ruisen Capital Management in Beijing. “They expect the restructuring to give it some breathing space and to reduce its debt burden.”
Calls to Qinghai Salt’s media department seeking comment on the restructuring went
unanswered (Qinghai Salt Lake hasn’t yet provided details of its plans — and there’s still the risk it could go bankrupt). Ruisen Capital’s Jiang says the company may be able to cut its debt load, delay payment or swap some of its debt into equities.
Defaults in China’s onshore bond market remain high in 2019, after a record year in 2018. Companies defaulted on almost $14 billion of domestic bonds as of October 14, following 120 billion yuan of defaults in 2018, according to data compiled by Bloomberg.