KANGDE Xin Composite Material Group Co., a Shenzhen-listed laminating film producer, failed to repay a local bond due Tuesday, which could trigger cross-default on its dollar note.

The firm cited liquidity crunch for not being able to repay the principal and the interest on the 1 billion yuan (US$148 million) bond, according to a public filing Tuesday. The default follows the firm’s warning Monday that it sees uncertainty in repayment of its 1 billion note as well as another 500 million bond due Jan. 21.

Chinese local bond failures surged to a record 119.6 billion yuan last year, more than quadruple the tally in 2017, as slowing growth in the world’s second-biggest economy and a deleveraging drive drained liquidity.

The missed payment could lead to default on its US$300 million dollar note, which may become the first dollar bond failure from a Chinese company this year. A Chinese local government will coordinate policy and funding arrangement to ensure stable operation at a unit of Kangde Xin Composite Material Group, people familiar with the matter said.

There is no grace period for the two local bonds due this month, according to their bond prospectuses. The firm has 3.5 billion yuan in local bonds outstanding and the US$300 million note due 2020.

According to the offering memorandum of the 2020 dollar note, a cross-default will be triggered if the firm’s parent guarantor or any restricted subsidiary fails to make principal amount of US$20 million or more when due.

Its credit rating was downgraded Monday to CC from BBB by Shanghai Brilliance Credit Rating & Investors Service Co., according to a filling on Shanghai Clearing House.

Fitch Ratings last month cut Kangde Xin’s credit rating by two notches to B+, after regulators in China found that the firm failed to adequately disclose information about dealings of its largest shareholder and worsening financial situation. (SD-Agencies)