China builder default shakes bond enhancer faith

The faith that international investors have put in some credit sweeteners on Chinese debt is being tested with the latest default. China City Construction International Co., whose recent shareholder change triggered early redemption of its debt, failed to make full payment due June 20 on its 5.35% 2.5 billion yuan ($377 million) Dim Sum notes with an original 2017 maturity, people familiar with the matter said last month. Its parent China City Construction Holding Group Co. provided a so-called keepwell deed, which is a commitment to maintain the issuer’s solvency while stopping short of guaranteeing payments. Concerns are mounting about the creditworthiness of Chinese companies amid $11.5 billion of Chinese securities sold with keepwell agreements this year, bringing the total outstanding amount to $71.6 billion, according to Bloomberg.