CHINA Sued for Property Losses – Bondholders Launch Legal Action Over Guarantees By State Companies

Video Summary

China’s property developer, China South City, has defaulted on its debt and is facing potential liquidation. This small developer, with around $8 billion in debt, is owned by the Chinese State and received a bailout in 2021. However, the company is now struggling to make payments on its bonds, which were restructured as part of the bailout agreement. The restructuring included extend the maturity date and reduce the interest rate, but this has not improved the company’s financial situation. The company is facing insolvency and has no plans to make interest payments.

In a landmark case, a group of bond holders are suing the Chinese State, which owns 29% of the company, under a “keepwell agreement.” This agreement is a loose guarantee that the parent company will keep the subsidiary solvent if it is struggling to make payments. The Hong Kong courts have recently upheld the validity of these agreements, potentially opening the door for hundreds or thousands of similar cases against the Chinese State. If successful, this could lead to a massive payout for bond holders. However, the Chinese State has not indicated whether it will fulfill these obligations. The outcome of this case will have significant implications for the Chinese property market, which is already struggling.

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