Shanghai Industrial Investment (Holdings) Co (SIIC) is suing the Hong Kong investment arm of the Fuzhou municipal government for $18.18 million.
SIIC's wholly-owned finance arm, SIIC Finance, yesterday filed a High Court writ against Hua Rong (Holdings) and its subsidiary Hua Rong Finance.
The writ seeks principal of $17 million and $1.18 million accrued interest from Hua Rong (Holdings) as guarantor and its subsidiary as borrower.
The move by SIIC, an arm of the Shanghai municipal government, to take legal action against another municipal government arm could trigger a chain reaction among other creditors.
A foreign bank official said: 'What we fear most is that we haven't made a move yet against the mainland companies but the mainland-based entities have already decided to take action against their counterparts.' His bank had not yet taken legal action against Hua Rong, which had failed to make interest and principal payments on a short-term loan worth tens of millions of dollars.
It is believed Hua Rong (Holdings) is having difficulties repaying other loans.
The company is mainly involved in finance, real estate, trading and fund-raising for projects in Fuzhou and Fujian.
