Bankruptcy case casts doubt on US$96 billion of offshore Chinese bonds claims, puts pressure on financial products skirting capital controls
- Peking University Founder Group restructuring casts doubt over validity of keepwell deeds
- Around 16 per cent, or US$96 billion, of outstanding Chinese offshore bonds contain keepwell provisions: Redd
The business arm of China’s most prestigious university met its creditors on April 30, and the outcome has shaken investors’ faith in widely used contracts for Chinese offshore bonds.
This decision impacts bondholders of about 16 per cent, or US$96 billion, of outstanding offshore bonds issued by Chinese companies, according to Redd, a market data provider. More than US$12 billion of debt rated by credit rating agency Moody’s uses keepwell deeds.
“This is the first time keepwell deeds have been tested in court. The administrator could set an important precedent,” said Renee Lam, a credit officer researching companies across the Asia-Pacific region at ratings agency Fitch.
With more companies coming under stress as the global economy tumbles into its worst downturn since the 1930s’ Great Depression, legal fights and restructurings will test other grey areas of investments that have mushroomed during the world’s longest bull market since the 2007-08 global financial crisis.