A DOMESTIC construction firm at risk of declaring a landmark bond default on nearly US$65 million is getting local political support to hold off creditors and get cash, domestic media reported Friday, citing sources at the struggling firm.

    Huatong Road & Bridge Group Co. announced Wednesday it was uncertain about its ability to pay principal on a 400 million yuan (US$64.48 million) one-year bond maturing July 23. The company blamed an official investigation into allegations of illegal activity by its chief executive.

    If Huatong defaults, it would be the first public one on China’s interbank bond market — the primary platform for China’s institutional fixed income investors, hosting 94 percent of the country’s bond issues. It would also be the first time a Chinese company has openly defaulted on principal for a bond.

    However, so far Chinese bond markets have remained relatively unaffected by the news, with analysts saying the possible default did not come as a surprise and seemed more a company-specific problem, although yields for one-year AA-rated commercial paper have been rising since June given tightness in the interbank market.

    Analysts said that Huatong’s account receivables and other receivables, which amounted to more than 3.5 billion yuan in the first quarter, are a major headache for the company.

    Shanghai Securities News quoted Geng Naizhung, who it described as a Huatong official, as saying the “local government,” where the company is based, is coordinating with the firm to facilitate collection of its outstanding bills.

    Geng also said the authorities held a meeting at which they “suggested” that banks cannot force Huatong to pay off outstanding loans, according to the report.

    The report did not specify which local government body — Shanxi Province or Yangquan City, where Huatong is based — Geng was referring to.

    Shanghai Securities News also quoted Geng as saying the company has dispatched working teams to collect accounts receivable and is seeking more support from local governments.

    The 21st Century Business Herald said that the Yangquan Municipal Government and Shanxi Provincial Government held a meeting to try to ensure Huatong can repay its the one-year bond on time.

    (SD-Agencies)