No Pledge from LGFV, China Private Bond Stressed
Published By : 27 Jan 2015 | Published By : QYRESEARCH
The private bond market in China is currently facing deeper scrutiny. The issue happened after a financing vehicle from a local government said that it held no guarantee obligation on the notes that were being distributed by a manufacturer. The vehicle is from the eastern province of Jiangsu.
The Dongtai based Dongfei Mazuoli Textile Machinery Co., is currently not able to pay principal and interest on the securities as of January 25. The finding was released in a report today that was based on Tencent Holdings Ltd. and the company’s credit ratings, released on QQ.com. The LGFV had already signed a contract with the manufacturer in 2012 that would guarantee its bond credit savings. The contract does not, however, guarantee the note payments from the company itself, as understood from a financial unit’s statement on January 26.
China has currently imposed a ban on individual investors from handling bonds that are issued by small and medium sized enterprises using private placement. This happens while the second largest economy in the world faces corporate default risks.
There was help from the guarantor of debentures that were sold by Xuzhou Zhongsen Tonghao New Board Co. The board stepped in to provide assistance after the Jiangsu based buildings materials producer had missed a payment for a coupon in March 2014.
Standard and Poor analyst Liang Zhong said that the onshore investors are growing increasingly cautious against credit risk today, because they have noticed a consistent decline in the economy. He added that the issue ends up displaying the relationship between LGFV guarantors and issues that can be quite opaque. This could increase t¬¬he payment uncertainties for bond holders.