A little-known Chinese firm at risk of a landmark bond default has set alarm bells ringing among investors in the world's second largest economy.
Against a backdrop of geopolitical tensions in Ukraine and Gaza, Huatong Road & Bridge Group Company warned this week that it would not be able pay down its debt, potentially making it the second default in the onshore bond market this year after a Shanghai energy firm failed to make an 89 million yuan ($14.5 million) interest payment in early March.
Huatong's predicament is set to mark the first time a Chinese company has openly defaulted on the principal and the interest for a bond. The principal of a bond is how much an investor originally borrows, the interest is the extra money that investors have to pay back to the lender. It would also be the first default on China's interbank bond market - the country's largest bond market - which holds 94 percent of bond issues, according to Reuters.
Ryan Huang, a market strategist based in Singapore for brokerage IG Markets, said that traders were likely to remain jittery on Friday, with news of this potential default adding to global concerns. He added that it showed more "signs of stress" on the corporate debt front in the country.
Joao Monteiro, an analyst at Valutrades, said that the default threat was the biggest concern for investors in Shanghai this week, although the index erased early losses in Friday's session to end 0.2 percent higher, snapping a two-day losing streak.
"This would be another sign that we're moving into bubble territory and investors would be perfectly justified to be showing signs of concern," he said in a research note.