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China avoids second corporate bond default: report

A construction firm narrowly avoided becoming the second company in China's modern financial history to default on a corporate bond after a last-minute rescue by local authorities, state-run media said Thursday.

Shanghai - A construction firm narrowly avoided becoming the second company in China's modern financial history to default on a corporate bond after a last-minute rescue by local authorities, state-run media said Thursday.

The country's first landmark default came in March when Shanghai-based Chaori Solar Energy Science and Technology Co. failed to meet interest payments of nearly US$15 million, raising questions about Chinese debt and sparking fears others would follow suit.

Last week it looked like Huatong Road and Bridge Group could be next when it said there was "uncertainty" over payment on a 400-million-yuan (US$64 million) bond, citing the absence of chairman Wang Guorui due to his help in a probe that state media linked to corruption allegations.

Huatong issued the bond with an annual yield of 7.3 percent last July, documents filed with the Shanghai Clearing House show. However, the company on Wednesday made full principal and interest payments of 429 million yuan, the Shanghai Securities News said, citing unnamed sources.

The firm, based in the northern province of Shanxi, used its own funds and accounts receivable from companies linked to local governments to repay the debt, a source told the paper, adding "active coordination" by authorities helped. The case would have been China's first public default on bond principal as well as interest, according to state media.

Authorities have said defaults are "hardly avoidable" and shown more willingness to tolerate such incidents, which analysts said may ultimately benefit the market by making investors more selective. Earlier this year, China's markets were gripped by worries over another type of financial product issued by trust companies, which has drawn comparisons to the American "junk bonds" of the 1980s.

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