Chinese state-owned conglomerate Peking University Founder Group missed payment on a 2 billion yuan (US$283 million) onshore bond, shattering the market’s confidence in companies previously considered as low-risk. The company controlled by Peking University, a top Chinese college, could not service the 270-day bond because of a liquidity crunch, it said in an exchange filing on Monday. It is the latest in a spate of defaults by Chinese companies. Tunghsu Optoelectronic Technology too missed an interest payment on its 1.7 billion yuan (US$241 million) onshore bond on Monday. Founder Group, which operates in industries from software development to securities trading and real estate, is “actively seeking funding through various channels and strengthening operations” to ensure repayment of the bond, it said. Chinese corporate bond defaults to rise in 2020 The default came as a surprise to China’s onshore investors, as Founder Group was rated AAA, the highest level by domestic rating agencies including China Lianhe Credit Rating. The agency lowered Founder group’s long-term rating to A with a negative outlook on Monday. Analysts said investors were likely to re-examine their previous perception that such firms – especially with the backing of top universities owned by the Ministry of Education – would not fail their debt obligations. “Many university-backed companies are in a similar situation as Founder Group,” Guotai Junan Securities fixed income analysts led by Qin Han wrote in a report published on Tuesday. “This default signals an acceleration of fading confidence in these companies … It would trigger a correction in their valuations and create difficulties for refinancing.” The report added that investors should treat state-owned companies with greater caution going forward, and differentiate those with strategic significance to the government – thus more likely to receive support in times of difficulty – and those without. Founder Group has issued 23 bonds with 34.5 billion yuan of outstanding debt, of which nearly 70 per cent will mature within a year. Founder Group’s default is the latest indication of widespread financial distress faced by Chinese companies, made worse by poor corporate governance. The number of new bond defaulters could rise to as many as 50 next year from around 35 this year, according to Moody’s Investors Service. Founder Group has a messy shareholding structure and weak operational fundamentals, according to the Guotai Junan Securities report. The firm reported a staggering 83 per cent of debt to asset ratio in the third quarter, rising from 77 per cent at the end of 2016. An ongoing reform of university-linked companies also clouded the company’s outlook, Guotai Junan analysts wrote.