Guarantor Reassures Nervous Bond Investors Over Multimillion-Yuan Default

(Beijing) — A guarantor has told investors not to worry about millions of yuan worth of bonds now in default that were sold through an online wealth management platform linked to Alibaba Group's Jack Ma.

Two telecom product-making subsidiaries of Cosun Group, a Guangdong-based electronics manufacturer, recently defaulted on bond principal and interest worth a combined 312 million yuan ($44.9 million), according to a notice sent to investors Tuesday. Both subsidiaries blamed a cash crunch.

The announcement sparked investor concern targeting the bonds' guarantor, Zheshang Property and Casualty Insurance Co., and the Ma-affiliated internet platform Zhao Cai Bao, which helps small and midsize companies raise funds.

Hangzhou-based Zheshang sought to allay bondholder fears Tuesday by announcing that it was processing claims from investors who bought the bonds in December 2014 through Zhao Cai Bao, a division of Ant Financial Services Group.

Ant Financial is financially controlled by Ma, while New York-listed Alibaba Group Holding Ltd. is an e-commerce company whose founder is Ma.

Zhao Cai Bao issued a statement Tuesday declaring that Zheshang should have fulfilled its obligation by offering to compensate bondholders within three days of each default. But an Ant Financial official told Caixin that Zhao Cai Bao, as a third-party platform that supports financial services, is not involved in the post-default process.

Zheshang promised to compensate any investor within three days of confirming that his or her claim is genuine. It takes 30 days to confirm a claim, the insurer said.

However, Zheshang said, compensation claim documents submitted Dec. 19 by the bond underwriter Guangdong Equity Exchange were incomplete.

Phone calls to Zheshang's media affairs office rang unanswered Thursday.

No more than 200 investors for each private issue bought the bonds, which were guaranteed by Zheshang. The bonds were registered with the exchange in December 2014.

Officials at the China Insurance Regulatory Commission (CIRC) are apparently monitoring the process.

A source close to CIRC told Caixin that regulators have asked Zheshang to keep them informed on a real-time basis.

"A property insurance company should carefully screen an internet lending platform," said the source. "Among online platforms, Zhao Cai Bao is actually considered to have sound risk control."

Moreover, Zheshang appears financially sound. The 8-year-old company has 1.5 billion yuan in registered capital and reported third quarter net assets of 1.3 billion yuan. Premium income for the first nine months of 2016 totaled 2.4 billion yuan.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)