China National Erzhong Group, a state-owned manufacturer of heavy machinery, has warned that it may have to stop paying interest on a Rmb 1 billion (US$157 million) medium term note after being sued by a creditor.
A default would be the second by a Chinese state-owned company in the interbank bond market following that of power equipment manufacturer Baoding Tianwei Group in April.
China Erzhong said in a statement that one of its creditors, First Design & Research Institute MI China, had taken it to court to force a debt restructuring on the ground that the company was unable to pay debt and could not be liquidated.
If the court orders a restructuring, China Erzhong said its 5-year MTN issued in 2012 would mature with immediate effect.
It added that if such a ruling were to take place before September 28th, the interest payment date for the MTN, it would not pay the coupon, in accordance with Chinese bankruptcy law.
The company said it is trying to raise funds to pay interest and will convene a meeting with bondholders soon.
Meanwhile, China Erzhong Group (Deyang) Heavy Industries, a listed subsidiary of the group, has been sued by another creditor seeking a debt restructuring. The subsidiary issued a Rmb800m 7-year enterprise bond in 2008. Investors sold back part of the bonds in 2013, leaving Rmb310m in principal unpaid.