SHANGHAI, April 2 Investors in a small
construction materials firm in China that defaulted on its bond
payment last week will receive their payouts in about a month,
two sources with knowledge of the situation said on Wednesday.
The 180 million yuan ($29 million) interest payment for the
high-yield bond sold by Xuzhou Zhongsen Tonghao
New Board Co Ltd will be made by Sino Capital Guaranty Trust Co
Ltd, which had guaranteed the bonds, said the sources.
The sources declined to be named as they are not authorised
to speak to the media.
Xuzhou Zhongsen had missed the interest payment for its bond
on March 28, giving China its second-ever bond default in a
matter of weeks and underscoring the country's rising financial
risks as its economy cools.
It was not clear after Xuzhou Zhongsen defaulted on its bond
whether investors would recover their cash. Chinese media had
reported Sino Capital as saying initially that its guarantee in
the investment had not been approved by its headquarters, and
therefore need not be honoured.
Investment defaults in China used to be a highly-sensitive
event that was avoided by authorities, who would wade in with
last-minute bailouts on fear that financial losses for ordinary
Chinese may trigger social unrest.
But the government is now taking a tougher stance on the
realisation that its refusal to let unviable firms fail is
encouraging wasteful investment, and preventing resources from
being used efficiently.
Premier Li Keqiang said last month, just days after China
experienced its landmark first-ever default in its domestic bond
market, that further defaults are "hard to avoid" at a time when
the world's No. 2 economy faces "severe challenges".
Xuzhou Zhongsen, a maker of synthetic wood-like materials,
is based in the wealthy but highly-indebted Jiangsu province,
where financial stresses have become more pronounced as China's
economy slips into its slowest growth in over a decade.
Shanghai Chaori Solar Energy Science and Technology
, a loss-making solar panel equipment maker, has the
ignominious title of being the first company to default in
China's local bond market after missing an 89 million yuan
interest payment on March 7.
It is not clear how much money investors would recoup in the
case of Shanghai Chaori.
($1 = 6.2069 Chinese Yuan)
(Reporting by Gabriel Wildau and Samuel Shen in SHANGHAI;
Writing by Koh Gui Qing in BEIJING; Editing by Toby Chopra)