Huatong Road & Bridge Group Co. may avoid a bond default tomorrow as the Chinese government seeks stability in financial markets by helping the borrower, according to Founder Securities Co.
The Shanxi-based builder may repay the 429.2 million yuan ($69.2 million) in principal and interest on the July 23 due date, according to Song Jinzhi, head of fixed-income investment at the brokerage. Huatong warned investors last week about a possible non-payment, saying that Chairman Wang Guorui was assisting authorities with an investigation.
“We probably won’t see a default on bond principal in the the short term,” given regulators’ stress on curbing systematic risk, Beijing-based Song said in an e-mail yesterday. “There is low probability of systematic risks this year. We may see sporadic risks, such as defaults in private bonds and trusts.”
The avoidance of a second onshore bond default would highlight the government’s determination to prevent swings in the financial markets as foreign capital inflows in May declined to the least in nine months. Shanghai Chaori Solar Energy Science & Technology Co., a solar panel manufacturer, missed a coupon payment in March, marking the first such default.
The underwriters of Huatong’s bond won’t assist the issuer with payment because of regulator restrictions, the 21st Century Business Herald reported today on its website. The yield on the 7.3 percent notes dropped 421 basis points yesterday to 22.8 percent after peaking at 27 percent July 18, according to Chinabond data. Three phone calls made to the company by Bloomberg News weren’t answered today.
Under market rules, Huatong must transfer the outstanding money to a clearing house by 4:30 p.m. today, company official Geng Naizhuang said by phone July 18. It’s making all efforts to raise the funds, with help from the local government and bond underwriters, Geng said.
The potential default comes as policy makers seek to instill market discipline amid rising debt. Companies in China had $14.2 trillion of debt at the end of last year, more than the some $13.1 trillion owed by U.S. companies, Standard & Poor’s said in a June 15 report.
A default would shake investor confidence in short-term notes, which are considered safer than regular longer-dated corporate bonds, and might cause money managers to doubt the implicit guarantees from debt underwriters, Standard Chartered Plc credit strategist Becky Liu said on July 17.
China Central Depository & Clearing Co. has suspended valuation on two bonds issued by Huzhou Jintai Science & Technology Co. after the company failed to clarify a media report regarding possible defaults on principal and interest, the clearing house said on its website.
— With assistance by Judy Chen, and Laura Yin