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China dollar bond default tests bank guarantees for first time

Section: Daily Dispatches

By Carrie Hong and Carol Zhong
Bloomberg News
Thursday, April 25, 2019

Investor faith in Chinese dollar bonds backed by banks is about to be tested after a default by one of the country's best-known private conglomerates.

China Minsheng Investment Group Corp. said last week cross-default clauses have been triggered on dollar bonds worth $800 million. These include $300 million of debt that carries a standby letter of credit from China Construction Bank Corp. -- effectively a pledge to repay if the borrower can't.

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So far investor confidence that banks will honor such an agreement is unshaken. While CMIG's dollar bonds due in August -- which aren't backed by a letter of credit -- traded at around 58 cents on the dollar, bonds with CCB's backing due in 2020 were indicated at about 99 cents on the dollar today. ...

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