Caixin
Dec 26, 2016 06:33 PM
FINANCE

Guangfa Bank Says Its Guarantees of Bond Repayment Faked

(Beijing) — The default dispute related to 312 million yuan ($44.9 million) in bonds sold through an online wealth management platform continued Monday, as China Guangfa Bank Co. said documents guaranteeing bond repayments are fake.

Since Dec. 15, bond issuers, investors and guarantors have been embroiled in a dispute over the repayment of 312 million yuan worth of bonds that were sold on Zhao Cai Bao, a division of Ant Financial Services Group — the financial-services affiliate of Alibaba Group Holding Ltd.

The controversy emerged after Zheshang Property and Casualty Insurance Co. Ltd., the insurer that guaranteed the bond repayments, refused to offer compensation last week on the grounds that the claim documents it received from Guangdong Equity Exchange, the underwriter, were incomplete.

But it later became apparent that the real reason for the insurer’s reluctance was suspected fraud.

In 2014, two subsidiaries of Cosun Group, a Guangdong province-based electronics manufacturer, raised 1 billion yuan by selling bonds in private placements on Zhao Cai Bao as the debt-ridden subsidiaries attempted to borrow funds to pay back bank loans.

When they first reached out to bond investors on the internet financing platform, they encountered problems, sources told Caixin.

Zhao Cai Bao requires that any bond issuance must be backed by a financial guarantee from an insurance company. Most insurers, including Zheshang, have refrained from doing so amid rising defaults among smaller companies raising funds through bonds.

Only after a unit of Guangfa Bank, a lender that’s also based in Guangdong, issued warranties to Zheshang did it become possible to sell the bonds, the sources said.

The warranty allegedly issued by the branch of Guangfa Bank in Huizhou, Guangdong, was personally guaranteed by Cosun Group Chairman Wu Ruilin. According to the bond issuance contract, Wu undertook the liability for the principal and interest payments on the bonds using his personal wealth.

But Guangfa said on Monday in an announcement on its website that all the relevant financial warranty documents and seals were counterfeit. The commercial lender has already reported the case to local police.

In May, Zheshang received a statement from Guangfa in Huizhou that the warranties were authentic and valid, according to an announcement Zheshang made on its website on Saturday.

But when Zheshang urged Guangfa to assume the guaranteed liability on Dec. 19 after the defaults, the lender verbally refused, citing suspicion over the authenticity of the warranties, the announcement said.

The insurer has since asked the lender to offer written confirmation.

In addition to the recent defaults, two further tranches of the 1.15 billion yuan principal and interest payments will become due on Jan. 5 and 6.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)

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