China Power Firm Flags Bond Risk After Cloud Live Default

A Chinese power-transformer maker said it’s uncertain it can pay bond interest due next week after China’s onshore debt market this month had its second default ever.

Baoding Tianwei Group Co. is unsure if it can make the 85.5 million yuan ($13.8 million) payment on April 21 because of “huge losses” last year in its alternative energy business, listed affiliate Baoding Tianwei Baobian Electric Co. said in statement Tuesday to the Shanghai Stock Exchange.

Cloud Live Technology Group Co. missed a bond payment on April 7 after Premier Li Keqiang told parliament last month he is prepared to tolerate individual cases of “financial risk.” China’s corporate debt is the biggest in the world, a former central bank adviser wrote in the official China Daily, as data released today showed economic expansion at its weakest since 2009 last quarter.

“As the economy slows and the government’s tolerance for defaults rises, Chinese companies’ default risks may increase,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shanghai. “But we can’t exclude the possibility that these troubled companies may get bailouts at the last minute.”

China’s corporate borrowings are the highest in the world in absolute terms and relative to gross domestic product, former People’s Bank of China adviser Yu Yongding wrote in an April 15 commentary in the China Daily. GDP rose 7 percent in the three months through March from a year earlier, the statistics bureau said in Beijing today.

The yield on Baoding Tianwei’s BB rated notes due April 2016 has risen 3.69 percentage points this year to 18.98 percent, ChinaBond data show. The company sold 1.5 billion yuan of the securities in 2011.

Baoding Tianwei Group said it’s trying to raise money for the interest repayment through many channels, according to Baoding Tianwei Baobian Electric’s statement. Baoding Tianwei Group holds 22.96 percent of Baoding Tianwei Baobian Electric, according to the statement.

— With assistance by Judy Chen

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