Cloud Live Technology in second China onshore bond default
Cloud Live winds up 240.63 million yuan short of what it needs to meet repayment obligations on debt issued during its restaurant days in 2012
Troubled internet technology firm Cloud Live Technology Group defaulted on bond interest and bond repurchase commitments yesterday, making it the second mainland-listed firm to have done so after Shanghai Chaori Solar Energy Science & Technology's bond default last year.
Chaori was the first company to default in the mainland's onshore bond market.
Cloud Live had been able to raise only 161.4 million yuan (HK$202.8 million) to re- pay debt, 240.63 million yuan short of the amount needed to meet its repayment obligations yesterday, it said in a filing to Shenzhen's stock exchange.
"The company and its controlling shareholder plan to raise funds via third-party financing and continue to chase trade receivables," it said.
Cloud Live said in its preliminary results report that it had unaudited net assets of 26.55 million yuan at the end of last year, but did not rule out the possibility it could have had negative net assets.
It expected to post a net loss of 40 million to 60 million yuan in the first quarter of this year, after an unaudited net loss of 562.5 million yuan last year, its second annual loss in two years.
As China's economy slows and the central government shows a new tolerance for allowing isolated corporate defaults, onshore bond defaults are expected to increase.
"There could be more [defaults] in the private sector this year," said Ivan Chung, the head of greater China credit research at Moody's Investors Service. "It's not surprising to see a company like this default." Chung pointed to the distress signals from the company over the past few months.
The CSRC told Cloud Live on December 26 it would start investigating its then-chairman Meng Kai for violating securities regulations, according to a December 29 company statement that did not give further details. Cloud Live said in a January 7 statement that Meng had resigned as chairman and president on January 5, in order to protect company and investor interests.
Cloud Live was told by the CSRC in October that the company itself would be investigated for violation of securities rules. The probe has not produced any results, according to a February 27 statement. That news came not long after the firm radically shifted its business from restaurants into the technology sector.
Cloud Live was formerly Beijing Xiangeqing, which operated a chain of restaurants. It said in July it was shifting into the internet business and changed its name in August.
The bonds the company defaulted on yesterday were issued during its restaurant days in 2012 with a 6.78 per cent coupon. The yield on the securities jumped over 20 per cent as of April 1 from 9.7 per cent on December 31, exchange data shows. Investors had an option to sell them back to the company on April 5, with the effective payment deadline being April 7, the first business day after holidays on April 5-6.
Bond holders in the company included banks and asset managers, Chung said.
China has one of the world's most highly indebted corporate sectors.
