Cloud Live Tech warns it could default on 240 billion yuan of bond payments
Cloud Live Tech, a troubled mainland internet technology firm, is in danger of defaulting on 240 million yuan (HK$300 million) of interest and principal payments due to bond investors on Tuesday, the firm announced late on Thursday.
If Cloud Live Tech does default it would be only the second time a listed mainland company has done so following a similar default by Chaori Solar last year.
However, the Chaori default, initially hailed as a major step forward in rationalising the price of credit on the mainland by allowing companies to default on bonds, ended up with a bailout for investors, raising the question of whether the political system has the will to force bond investors to take heavy losses when borrowers default.
Cloud Live Tech posted a notice on the Shenzhen Stock Exchange website on Thursday saying trading in its stock and bonds had been suspended but would resume on Tuesday if it was able to make the payment.
The Chaori Solar default was resolved by a local-government-led bailout which resulted in a consortium of nine firms investing in the company to restructure its debt, and a partial guarantee of outstanding bond issues by two other firms, including state-owned China Great Wall Asset Management.
Mainland interbank bond prices fell and yields spiked after the initial Chaori Solar default announcement and the spread between high- and low-rated corporate debt also widened. Both fell back, however, following the bail-out announcement in October.
So far the bond market reaction to Cloud Live Tech’s announcement has been more muted.
Bond prices rose and yields fell across the board on Wednesday following the State Council’s announcement that the state social security fund could increase its investment allotment in capital markets and local government debt, and remained at the same level on Friday.
