China’s Tewoo Group has forced investors to take losses on a US dollar bond, marking the largest failure to repay dollar debt by a state-owned company in two decades and provoking fears of a wave of defaults, reported the Financial Times.
The commodities trader, which is wholly owned by the city government of Tianjin, completed an exchange offer this week that made investors take significant discounts on their holdings in the company’s debt. The offer was “tantamount to a default”, S&P Global Ratings said on Thursday, and is expected to reframe how global investors view the market for government-backed corporate debt.
“The market has been building to something like this,” said Fraser Howie, an independent analyst and co-author of the book Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise. State-owned enterprises “cannot be assumed to be backed by the state when it comes to bond repayment,” he added.
Until this year, no Chinese company backed by the state had been allowed to default on its dollar debt since the collapse of Guangdong International Trust and Investment Company, or Gitic, in 1998.