Bonds Dec 18

Chinese bond defaulters receive a judicial slap on the wrist 

Despite tough talk and new rules, when Guorong Securities ‘failed to fulfil its custody responsibilities’ they received a warning letter from their regulatory bureau 

Chinese bond defaulters receive a judicial slap on the wrist
The Yunnan Securities Regulatory Bureau issued a warning letter to Guorong Securities.

(ATF) The Chinese authorities remain relatively toothless when it comes to bond fraud and default cases, a report from China Business News has suggested.

Despite a lot of tough talk and new regulations, they revealed that Guorong Securities has recently been punished by official supervisors for failing to fulfil its custody responsibilities.

The Yunnan Securities Regulatory Bureau (YSRB) issued a warning letter to Guorong Securities, as the trustee of the 18 Tengchong 01 bond, for failing to take effective measures to urge bond issuers to use the raised funds “in a standardised manner”.

Read more: SoftBank-backed Ola recharges India’s electric vehicle ambitions

The warning came after it’s said they also didn’t organise self audits, nor truthfully report that the issuer had transferred the raised funds to others.

The issuer of the 18 Tengchong 01 bond is the Tengchong Jian’an Urban and Rural Investment Development (Group) Co Ltd. They transferred 25 million yuan of raised funds to Tengchong Shengyuan Tourism and Culture Investment Development Co Ltd and 38 million yuan to Tengchong Fengfeng. 

The total amount of 63 million yuan, accounting for 7.875% of the total funds raised, was earmarked for slum renovation. Both of the loans have been recovered.

According to Article 52 of the Administrative Measures for the Issuance and Trading of Corporate Bonds, for non-public issuance of corporate bonds, the bond trustee shall perform its duties in accordance with the bond trust management agreement.

WARNING LETTER

In addition, the YSRB issued a warning letter to the issuer of that bond, and the then chairman Bao Qifan and the current chairman Dong Dawen, requesting that two to respond on the matter.

In recent years, there have been frequent instances of securities firms failing to diligently perform their duties for bond management.

CITIC Securities stated in its 2020 semi-annual report that Western Securities Co Ltd, the lead underwriter and trustee of the bond issued to the Anhui Shengyun Environmental (Group) Co Ltd (Shengyun Environmental), went into default. 

Western Securities was “severally liable” for the losses of Guangzhou Securities, now called CITIC Securities South China. 

In September last year, Guangzhou Securities submitted materials to the Anqing Intermediate People's Court to sue Shengyun Environmental Protection and Western Securities. The subject of the lawsuit was RMB 100 million plus corresponding interest, liquidated damages and debt realisation costs.

Read more: SOE bonds plummet after Hongda misses payment

Read more: China dodges currency manipulator tag by the US

Bonds Securities China