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By Bloomberg

A bottle maker in China said it won’t be able to fully repay a bond due May 28 as a slowdown in the world’s second-biggest economy persists.

Zhuhai Zhongfu Enterprise Co., which supplies bottles for Coca-Cola Co. and PepsiCo Inc. in China, can only repay 148 million yuan ($23.9 million) of the 590 million yuan principal, according to a statement to the Shenzhen Stock Exchange Monday. It plans to pay all the 31.152 million yuan of interest. The manufacturer, which isn’t state-owned, sold the 5.28 percent securities in 2012.

China’s economy, which slowed to its weakest pace since 1990 last year, has shown little evidence of an acceleration even after the central bank cut interest rates three times since November. Baoding Tianwei Group Co., a power-equipment maker, became the nation’s first state-owned enterprise to default on domestic debt in April.

“Chinese companies’ credit profiles are worsening because the economy hasn’t stabilized,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shanghai. “We may see more defaults in the coming months. The worst is yet to come.”

Cash Crunch

Han Huiming, board secretary at Zhuhai Zhongfu, said when reached by phone Tuesday that the company will try to raise funds for the bond payment until the last moment.

The manufacturer, which is based in the southern city of Zhuhai and employees about 4,000 people, said in a May 21 statement that a bank consortium rejected its application for 500 million yuan of loans in May. The Zhuhai branches of China Everbright Bank Co. and Bank of China Ltd. have limited its freedom to spend the 61 million yuan of capital on its accounts, it said.

Because Zhuhai Zhongfu is having a “liquidity crisis,” the company can’t collect enough money for the payment through its own business operations, according to the statement Monday. The firm will try to raise more funds before transferring money to the bank account appointed by the China Securities Depository and Clearing Corp. on May 26, it said.

Sales Slump

Zhuhai Zhongfu’s orders have declined significantly since 2012 as its biggest clients increased their own production of bottles, according to a report from China International Capital Corp. on May 11. The company’s business with its three largest clients Coca-Cola, Pepsi and Uni-President China Holdings Ltd. generated only 33 percent of revenue last year, down from 49 percent in 2011, according to CICC. Coca-Cola remains the manufacturer’s biggest customer, according to board secretary Han.

China Chengxin Securities Rating Co. cut Zhuhai Zhongfu’s issuer rating to BB from A+, citing “relatively big uncertainty” in the bond payment, according to a statement on May 22. The agency also lowered the 2015 bond rating to BB from A+.

Besides Baoding Tianwei, two other companies have defaulted in China’s onshore bond market to date -- Cloud Live Technology Group Co. in April and Shanghai Chaori Solar Energy Science & Technology Co. last year. Both are also not owned by the government. Also in April, Kaisa Group Holdings Ltd. became the first Chinese developer to default on its U.S. currency debt.

Defaults Spread

“China has a lot of bonds maturing this year and many of their issuers have weak credit strength,” said Zhang Li, a bond analyst at Guotai Junan Securities Co. in Beijing. “That’s why we’ve seen so many defaults in the past two months.”

Among outstanding notes issued by Chinese companies, 91 percent are from government-backed enterprises, while just 6 percent are sold by privately owned firms, according to data compiled by Haitong Securities Co. Most financial institutions expect another onshore bond default this quarter, according to a Bloomberg survey of 20 Chinese banks, brokerages and asset management firms.

Zhuhai Zhongfu had a loss of 41.717 million yuan in the first quarter, compared with a 67.053 million yuan profit in the same period last year, according to a statement on May 15. The company had 2.58 billion yuan of borrowings as of March 31, while its assets were 3.66 billion yuan, it said. Sales have declined because of sluggishness in the beverage-packaging industry and increasing competition, according to its annual financial statement on April 30.

Risky Borrowers

If it misses the full bond payment, five pieces of land and a factory building will be used as a guarantee for future repayment, Zhuhai Zhongfu has said.

The company’s notes yielded 19.33 percent in the secondary market on June 27 last year before being delisted from the exchange, according to exchange data.

The manufacturer also has 590 million yuan of 6.6 percent bonds due 2017. Holders of those securities will meet on May 29 to discuss unspecified proposals following a rating downgrade and change of the company’s biggest shareholder, according to a statement posted to the China Foreign Exchange Trade System’s Chinamoney website.

Zhuhai Zhongfu’s notes due May 28 were included in a list of China’s four riskiest borrowers in a report from Haitong Securities dated April 22.

Despite the concerns about its ability to meet obligations, the company’s shares in Shenzhen soared 126 percent this year through April 29 amid a rally in Chinese equities. Its stock has been suspended from trade since after that day.