First Chinese Corporation Defaults Gets No Aid From Goverment

A solar-panel manufacturer has become the first Chinese company to default on domestic bonds, in a watershed moment for market forces in the world’s second largest economy.

There was no sign of a last-minute government rescue for Shanghai Chaori Solar, after the firm failed to repay the bulk of an interest repayment that was due on Friday.

The loss-making firm warned earlier this week it would be only be able to repay 4m yuan (£389,000) out of the 89m yuan interest payment, due on 1bn yuan of bonds issued in 2012.

Liu Tielong, Chaori’s board secretary told the Wall Street Journal on Thursday that the Shanghai government “hasn’t promised anything and is treating our debt crisis according to market rules”.

He said a bondholders’ meeting to discuss the debt would be called in the coming days. “We will try our best to pay bondholders as soon as possible but the company also has other debts,” said Liu. The default happened after a last-gasp refinancing plan fell at the final hurdle, according to local media.

Analysts said the move was a step forward for market discipline, in contrast to the customary government interventions to prop up struggling companies. “The Chaori default goes to show the government will begin to let the market decide the fate of weak borrowers. This test case indicates the government is addressing the moral hazard issue,” Christopher Lee, managing director of corporate ratings for Greater China at Standard & Poor’s, told Reuters. “Incidence of defaults will likely be incremental but controlled,” he said, naming metals and mining, shipbuilding and materials as key default risks.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza