(Recasts, lifting context and background)
SHANGHAI, July 16 A Chinese builder has warned
its investors it may not be able to repay a $65 million debt due
next week, possibly becoming the first borrower to default in
the country's largest bond market and highlighting concerns over
the construction sector.
Huatong Road & Bridge Group Co Ltd said on Wednesday it
might fail to pay investors both interest and principal due on a
one-year bill on July 23, revealing that its
chairman was "assisting an official investigation."
The firm gave no details on the investigation in its
statement to the official Shanghai Clearing House. Both the
construction and real estate industries have suffered as house
prices have fallen and infrastructure spending has slowed.
If Huatong fails to pay, it would be the first publicly
announced default in China's institutional bond market. It would
also be the first time a Chinese company has publicly defaulted
on both interest and principal due on a bond.
China's first publicly-known default was in March when
Shanghai Chaori Solar Energy Science and Technology
did not make 89 million yuan ($14.35 million) in interest
payments due on a bond traded on the Shenzhen exchange, a far
smaller venue serving retail investors.
But that default startled many would-be bond issuers who put
plans on hold as yields on riskier debt rose in reaction. At the
same time, bond investors began moving funds into bonds
perceived as protected by implicit government guarantees.
Chinese companies owe their current bondholders just over $1
trillion, of which 15.8 percent is coming due this year, Thomson
Reuters data showed.
Huatong, based in the north central province of Shanxi,
issued 400 million yuan ($64.48 million) in one-year bills in
July last year. According to Reuters data, the company had total
assets of 11.1 billion yuan at the end of 2013.
The bond has a coupon rate of 7.3 percent. The issue was led
by China Guangfa Bank and Guotai Junan Securities.
After Huatong's statement, China Lianhe Credit Rating
downgraded the company to BB+ from AA- with a negative bias, and
the bond's rating to B from A-1.
Credit metrics for many Chinese firms have been steadily
worsening, in particular those exposed to real estate. While
China posted post 7.5 percent GDP growth in the second quarter,
many economists attributed that primarily to government support
as opposed to a genuine revival in end demand.
($1 = 6.2035 Chinese Yuan)
(Reporting by Pete Sweeney, Xu Yong and the Shanghai Newsroom;
Editing by Richard Borsuk and Mark Bendeich)