Yields on troubled Chinese construction bond double as landmark default looms

SHANGHAI, July 22 Tue Jul 22, 2014 12:15am EDT

SHANGHAI, July 22 (Reuters) - Yields on a short-term bond issued by a troubled Chinese construction company have more than doubled in recent days as hope fades that the firm can avoid defaulting on Wednesday.

On July 16, unlisted Huatong Road & Bridge Group Co Ltd announced that it was uncertain about its ability to make payment on a 400 million yuan ($64.4 million) one-year bond issue that matures July 23, after its chief executive was placed under investigation for illegal behavior.

On Thursday, one day after the announcement, the yield spiked to a record high of nearly 15 percent, from around 6 percent.

At the market close on Monday, it remained around that level even though state media reported on Friday that the company expected strong government support in helping it recover receivables and postpone loan payments.

"The spike in the yields indicates bondholders are not confident the company will be able to pay on Wednesday," said a bond trader at major state-owned bank in Shanghai, who spoke on condition of anonymity because she is not authorised to speak to the media.

"It is hard to predict whether the government will come to bail out. In the future, investors will be more cautious about bonds with lower ratings," she said.

Huatong has not made an announcements since July 16.

If Huatong doesn't pay on Wednesday, it will be the first time a Chinese company has defaulted on a bond principal payment, and the first bond default in China's interbank market, the market that hosts around 94 percent of China's bond issues.

($1 = 6.2078 yuan) (Reporting by Pete Sweeney; Editing by Richard Borsuk)

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