Corrected: WRAPUP 2-China sees first state-owned firm default on bond

Glorious Property Holdings

30/11/2015 13:13

(Changes name of defaulting company to Baoding Tianwei Group, 
not Baoding Tianwei Baobian Electric Co Ltd  600550.SS , removes 
3rd para describing listed company; clarifies ownership 
structure in para 8) 
    * Power firm Baoding: hasn't raised enough funds to pay 
interest 
    * "This affair has nothing to do with us" - state-owned 
parent 
    * Firm warned investors on April 16 about possibly missing 
payment 
 
    By Nathaniel Taplin and Pete Sweeney 
    SHANGHAI, April 21 (Reuters) - A power company in China 
failed to make an interest payment on a bond on Tuesday marking 
the first time a state-owned firm has been allowed to default 
and adding to evidence that Beijing is slowly withdrawing its 
sovereign guarantee of low-quality bonds. 
    Baoding Tianwei Group said in a statement that it was unable 
to make the payment on time. 
    The default "might destroy the ironclad guarantee reputation 
of central government-owned issuers", wrote analysts at China 
Chengxin International Credit Rating Co in a research note 
before the default. 
    But they added that the low grade of Tianwei and the other 
defaulters limits the market impact of any defaults. 
    The news comes shortly after a full default on both 
principal and interest by Cloud Live Technologies earlier this 
month, and a more recent offshore default by Kaisa Group 
 1638.HK , the first Chinese developer to default on dollar 
bonds.  ID:nL4N0XI1AB  Investors are now eyeing developer 
Glorious Property Holdings  0845.HK , whose bond payment comes 
due on Saturday. 
    But defaults on bonds sold to foreigners offshore have 
failed in the past; what the Chinese political system has 
struggled with is allowing domestic defaults. The first default 
in 2014 by a small private solar power company ultimately ended 
in a bailout several months later. 
    Baoding Tianwei Group is entirely owned by the Beijing-based 
China South Industries Group Corporation, which advertises 
itself as a part owner of Changan Automobile Group on its 
corporate website as well as a major defense equipment maker. It 
is directly owned by the central government. 
    Calls to the company were not answered, but investors 
appeared to have taken the lack of a rescue in stride, with bond 
markets shrugging off the news.  
    On April 16, the company had warned investors that it might 
miss an 85.5 million yuan ($13.8 million) interest payment. 
    The 5-year, 1.5 billion yuan bond maturing in 2016 has a 
coupon of 5.7 percent. It was originally rated AA+, but was 
later downgraded to BB. 
     
    FEW SIGNS OF BAILOUT 
    Despite its links to the government, there were few signs 
China South Industries would rush to Baoding Tianwei's rescue.   
    "This affair has no connection with us," said an employee of 
China South Industries when contacted, although the employee 
confirmed that Baoding Tianwei is a subsidiary. He suggested 
contacting its underwriter, China Construction Bank. 
    When contacted by Reuters, China Construction Bank  0939.HK  
 601939.SS  declined comment.       
    The case highlights the unclear relationship between Chinese 
firms and their government sponsors. Chaori Solar, China's first 
firm to default in March 2014, was privately owned, and yet its 
ultimate bailout later that year was orchestrated by its local 
government.    
    Traders saw the additional liquidity from the Chinese 
central bank's cut to banks' reserve requirement ratio (RRR) on 
Sunday as overwhelming any market reaction. 
    "The market is swamped with money after the RRR cut," said a 
senior trader at an Asian bank in Shanghai. "Yields on every 
type of fixed income product are falling, while bullish 
sentiment washes away any secondary negative news." 
    ($1 = 6.2005 Chinese yuan) 
 
 (Additional reporting by Lu Jianxin and John Ruwitch in 
SHANGHAI and Umesh Desai in HONG KONG; Editing by Jacqueline 
Wong) 
 ((Nathaniel.Taplin@thomsonreuters.com; +86 021 6104 1779;)) 
 
Keywords: CHINA DEBT/BONDS