This Local Engineering Firm May Have a Big Exposure to China’s Debt Problem

Last week, I wrote about how China may be encountering some big debt-related problems.

One small engineering company in Singapore that has big exposure to China would be ISDN Holdings Limited (SGX: I07). In 2015, three-quarters of its total revenue of S$236 million had come from China.

There’s something else interesting to note and that is ISDN’s connection to Chinese power outfit China Huadian. In 2013, ISDN announced that it had signed a MOU with the Chinese company to pursue power-related projects.

According to data from S&P Global Market Intelligence, China Huadian currently has net debt of RMB372 billion (total debt of RMB386 billion and cash & equivalents of RMB14.0 billion) but shareholder’s equity of just RMB54.3 billion. The company’s balance sheet is mired in debt.

China Huadian is a part of the China South Industries Group Corporation, which also has Baoding Tianwei Group under its umbrella. Baoding Tianwei is in turn, currently undergoing bankruptcy procedures.

Given that Baoding Tianwei has filed for bankruptcy, it’s evident that China South Industries Group, a Chinese state-owned enterprise, has either failed or refused to provide much assistance. If China Huadian runs into financial difficulties, would it suffer a similar fate as Baoding Tianwei?

A Fool’s take

The soundness of ISDN’s revenue in the future would depend on how it is able to diversify its client base and geographic concentration. Can it do so? Time will tell.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn't own shares in any companies mentioned.