A Hong Kong based unit of China’s eighth biggest investment bank Guosen Securities has defaulted on Hong Kong traded Yuan bond, known as dim sum bonds. This is the first default of this kind by a state owned enterprise. It missed out the coupon payment on date, putting it in technical default mode. Now risks have increased that it may miss the payment of $5.9 million worth of coupons, on April 24th. The debt was issued by Guosen in 2014, worth, Yuan 1.2 billion at interest rate of 6.4%.
As of now, it is quite not clear, why Guosen Hong Kong defaulted the payment, especially since its parent company in China is quite health to go with.
In 2015, Guosen mainland’s profit rose by 188% to Yuan 14.2 billion.
While it is a possibility that Guosen wants to restructure its bonds by negotiating with investors as interest rates are now much lower in mainland, compared to 2014.
Nevertheless, it is better to keep a tab on the developments. If it is more than intended negotiations, then it could trigger tension in Yuan dominated bond market, which in turn may lead to currency fluctuations.
The material has been provided by InstaForex Company – www.instaforex.com