Updated: 03/07/2014 12:50 | By Agence France-Presse

China's first corporate default sparks legal action: lawyer

China's first-ever default on a domestic corporate bond, expected Friday, has sparked legal action by investors owed interest payments from a solar company, their lawyer said.


China's first corporate default sparks legal action: lawyer

China's first-ever default on a domestic corporate bond, expected Friday, has sparked legal action by investors owed interest payments from a solar company, their lawyer say - by Francois Bougon

Shanghai-based Chaori Solar Energy Science & Technology Co. said Tuesday it was unable to make full interest payments of 89.8 million yuan ($14.7 million) on a bond issued in 2012. 

The company could not be reached for comment on Friday. 

Lawyer Gan Guolong, who represents investors, said Chaori was already effectively in default and a formal announcement was not expected.

"The default today is already an established fact," Gan told AFP. "We will definitely help recover bond holders' interests through relevant legal action." 

Investors had already asked the Higher Court of Guangdong province to order payment from the company, its listing exchange and the lead underwriter for the bond's initial issue, he said, but the case was still pending. 

Chaori lists both shares and bonds on the Shenzhen exchange in Guangdong.

The development is being widely described as China's first ever corporate bond default, but analysts say that it could benefit the market in the long term by raising awareness of risk and making investors more selective.

A commentary issued by China's official Xinhua news agency late Thursday suggested the government was willing to let the company default.

"If a default does occur, the episode should help reduce the moral hazard caused by the widespread assumption that an almighty government will always bail out underwater investments with taxpayers' money," the commentary said.

"That, after all, is the market playing its own decisive role," it said, using a catchphrase for economic reforms pledged at a key Communist Party meeting last year.

Investors said representatives had also asked the district government in Shanghai, where the firm is located, and the China Securities Regulatory Commission market watchdog to act.

Chaori's board secretary, Liu Telong, said Thursday that the company was not expected to receive a bailout from the Shanghai authorities, Dow Jones Newswires reported.

The city government "hasn't promised anything and is treating our debt crisis according to market rules", he said.

Analysts said bond buyers, who are largely retail investors in China, would be hurt but a default would have a limited immediate impact on China's corporate debt market.

"In recent years, local governments have intervened several times to prevent defaults in the onshore corporate credit market in order to maintain economic and social stability," ratings agency Fitch said in a report this week.

"That the Chaori default has been allowed to emerge may signal a shift in the government's stance towards a greater tolerance of outright corporate defaults."

Chaori shares have been suspended from trading on Shenzhen's small- and medium- enterprise board since February 19. They last traded at 2.59 yuan ($0.42).

Trouble in China's solar sector, which has been plagued by falling prices for cells and panels as well as production over-capacity, came to the forefront last year with the collapse of Suntech Power, once the world's biggest solar firm.

Latest Photo Galleries on xinmsn

NEWS VIDEOS

MORE NEWS VIDEOS

facebook recommendations

LIVE NEWS RADIO STREAMING

  • 938 Live

    938LIVE is Singapore's only English news and talk station which transmits round the clock with an engaging and enticing spread of programmes on current affairs, health, business and lifestyle as well as news every half hour until midnight.

  • Capital 958


    95.8FM城市频道的前身是"第三广播网"。上个世纪30年代末,新加坡就有中文广播,一路走来经过不少政治,社会局势的改变,中文广播在本地一直扮演举足轻重的角色。