Via Financial Times

One of the largest state-owned companies in western China has been forced to auction assets and shares originally valued at more than $2.5bn on an ecommerce website, a controversial move aimed at avoiding delisting from the Shenzhen stock exchange next year.

But the assets put up for sale by Qinghai Salt Lake Potash Company, China’s largest potash producer, have so far failed to attract bids on the Alibaba-owned ecommerce site, Taobao. That has forced the troubled group to cut the asking price by more than 75 per cent and launch five consecutive auction rounds, with the latest one set to kick off on Tuesday.

Chinese companies have come under heavy financial pressure this year as economic growth slows to a three-decade low. Many strains from excessive leverage have surfaced among local governments across the country, most recently with the default of state-commodities trader Tewoo Group.

Qinghai Salt Lake Potash, named after the province where it is based and known as China’s “potash king”, reported losses for both 2017 and 2018.

A third year of losses for the group, which is 27 per cent owned by the Qinghai government and 20 per cent held by state chemicals conglomerate Sinochem, would result in the company’s delisting from the Shenzhen stock exchange in 2020, as mandated by bourse rules.

In an attempt to boost fourth-quarter income and save itself from delisting, Qinghai Salt Lake Potash has resorted to hawking a collection of shares and assets on Taobao, the group said in a regulatory filing.

The auction is an unusual and controversial move for a state-owned company.

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Chinese media including respected financial magazine Caixin have raised questions over whether state assets could be undervalued in the auction process, resulting in losses for government shareholders.

The first auctions starting in late November for three packages of assets and shares had a total starting price of Rmb17.8bn ($2.5bn), results from the public auction show.

After attracting no bids on four auctioning rounds, the fifth round, which starts on Tuesday, has priced the same assets at just Rmb4.3bn — a 75 per cent discount to the original asking price.

Economists have recently pinpointed Qinghai as a hotspot for high levels of government debt.

“Ballooning local government debt is creating a systemic balance-sheet mismatch risk, which underlay the 1997-98 Asian financial crisis,” Chi Lo, senior greater China strategist at BNP Paribas Asset Management, said in a note to investors last week. “Local debt-to-GDP ratios are the highest in Guizhou, Qinghai and Yunnan.”

Alibaba’s Taobao, one of the largest ecommerce businesses in the world, includes a court auction platform that has become a venue for sales of everything from shares in listed banks and Audis confiscated from arrested officials to distressed debt portfolios and even a national toothpaste brand.

On Monday, an auction of more than 3,600 tonnes of indium ingots with a starting price of Rmb2.9bn failed to attract investors. The stockpile was once held by the state-backed Fanya Metals Exchange, which collapsed in 2015 following a major fraud incident.

Additional reporting by Sherry Fei Ju in Beijing