Cloud Live Says Will Miss Payment in 2nd China Onshore Default

China’s corporate bond market may experience its second default after Internet company Cloud Live Technology Group Co. said it will miss payments, and Premier Li Keqiang said the nation will tolerate individual cases of financial risk.

The big data provider, which shifted into that industry in July after corruption probes hurt its former restaurant business, will fail to meet an April 7 deadline to pay investors who had exercised an option to sell back notes, the company said in statements to the Shenzhen stock exchange on Monday. Failure to pay would constitute the second default on an onshore yuan debenture.

President Xi Jinping’s anti-graft probe and the slowest economic growth since 1990 are stoking concern defaults may spread, a year after Chaori Solar Energy Science & Technology Co. became the first company to default on onshore bonds. The China Securities Regulatory Commission had said last month that Cloud Live should urge its biggest shareholder and former chief to return from overseas to solve the repayment problem.

Cloud Live issued the bonds in question in 2012 with a 6.78 percent coupon. The yield on the securities jumped over 20 percent as of April 1 from 9.7 percent on Dec. 31, exchange data show. Investors had an option to sell them back to the company April 5, with the effective payment deadline being April 7, the first business day after holidays April 5-6.

Principal Default

Haitong Securities Co. and China International Capital Corp said April 2 in reports it would be the first default on a bond principal payment. Shanghai Chaori failed to fully pay interest on its bond last year.

Premier Li said on March 15 the government will prevent any systematic fallout while tolerating individual cases of financial risk.

This isn’t the first time efforts to clean up the world’s second-biggest economy have touched the company. Cloud Live was formerly Beijing Xiangeqing Co., which operated a chain of restaurants. It said in July it was shifting into the Internet business and changed its name in August.

The company’s abrupt turn into the “totally unrelated” information-technology industry came after it shuttered some stores in 2013, according to a documentary on Xi’s anti-graft drive that aired on the official China Central Television on Dec. 17.

Anti-Corruption Barometer

The business performance of “high-end restaurants like Xiangeqing has become the barometer” for the anti-corruption drive which has discouraged wining and dining, the documentary said. Many of its restaurants in Beijing were located near government agencies or military compounds.

The CSRC told Cloud Live on Dec. 26 it would start investigating its then-chairman Meng Kai for violating securities regulations, according to a Dec. 29 company statement that didn’t give further details. Cloud Live said in a Jan. 7 statement that Meng had resigned as chairman and president on Jan. 5, in order to protect company and investor interests.

Cloud Live was told by the CSRC in October that the company itself would be investigated for violation of securities rules. The probe hasn’t produced any results, according to a Feb. 27 statement.

The firm is among 18 companies the CSRC is investigating, along with their staff, for alleged stock-market manipulation, the regulator said in a Dec. 19 statement. The probe is looking into practices including driving up stock prices by quickly buying and selling and selectively releasing information to move the market, it said.

Cloud Live’s Meng went abroad after the nation’s Golden Week holiday in the first week of October to raise money for note repayment and look for potential buyers for company assets, according to a Dec. 2 company filing. It didn’t say where he had gone, and there has been no update on his whereabouts.

— With assistance by Judy Chen

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