Debt woes of one of China’s top cities highlighted by first-of-its-kind bond default
- Tianjin-based Bohai Securities defaulted after buying 375 million yuan (US$55 million) of special purpose bonds issued by the Henan government via auction
- Henan province responded by blacklisting the brokerage firm which is controlled by the municipality of Tianjin
In a rare dispute between provinces over the sale of local government bonds, the finance department of Henan province in central China blacklisted a brokerage firm controlled by the municipality of Tianjin this week after the firm failed to pay in full for the bonds it had bought.
The incident is the latest in a series that underscore the rapidly worsening financial situation in Tianjin, one of the four mainland cities that are under direct supervision of the central government.
But Bohai Securities only paid 30 million yuan the day after the auction, less than 10 per cent of the value of the bonds. The default, the first-of-its-kind nationwide, led the Henan government to remove the firm from its list of authorised bond underwriters until 2022.
In a response to the official China Securities Journal newspaper, Bohai Securities blamed the default on an employee from its bond underwriting department who was not aware of the result of the auction until two days later, causing it to miss the payment. It added that the firm tried to pay again later but did not succeed.