Second Chinese listed firm says at risk of bond default

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Cloud Live Tech Group, a troubled Chinese internet technology firm, is in danger of defaulting on 240 million yuan of interest and principal payments due to bond investors on April 7th, the firm announced late Thursday.

If the firm does default it would be only the second time a listed Chinese company has done so following a similar default by Chaori Solar in 2014.

However, the Chaori default, initially hailed as a major step forward in rationalizing the price of credit in China by allowing companies to default on bonds, ended up with a bailout for investors, raising the question of whether China's political system has the will to force bond investors to take heavy losses when borrowers default.

Cloud Live Tech posted a notice April 2 on the Shenzhen Stock Exchange website, saying trading in Cloud Live Tech's stock and bonds was suspended as of April 2, but will resume on April 7 if the firm is able to make the payment.

The Chaori Solar default was resolved by a local government-led bailout which resulted in a consortium of nine firms investing in the company to restructure its debt, and a partial guarantee of outstanding bond issues by two other firms, including state-owned China Great Wall Asset Management.

Chinese interbank bond prices fell and yields spiked after the initial Chaori Solar default announcement and the spread between high- and low-rated corporate debt also widened. Both fell back, however, following the bail-out announcement in October.

So far the bond market reaction to Cloud Live Tech's announcement has been more muted.

Bond prices rose and yields fell across the board on Wednesday following the State Council's announcement that the state social security fund could increase its investment allotment in capital markets and local government debt, and have remained at the same level today.

Yields on the benchmark seven-day repurchase agreement were down about 20 basis points in morning trading.