The growing risk of default by Shanghai Chaori Solar Energy Science & Technology Co. may become China’s “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp. “We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start,” Hong Kong-based strategists David Cui, Tracy Tian and Katherine Tai wrote in a note yesterday. During the U.S. financial crisis, it took a year “to reach the Lehman stage” when investors began to panic and shadow banking froze, the strategists added. The maker of solar cells said March 4 it may not be able to make an 89.8 million yuan ($14.7 million) interest payment in full by the deadline tomorrow. As sub-prime mortgages fell amid the 2008 U.S. financial crisis, banks began hoarding cash, causing two Bear Stearns Co. hedge funds to seek bankruptcy protection. The troubled bank was sold to JPMorgan Chase & Co. in March of that year in a deal facilitated by the U.S. Federal Reserve. Six months later, Lehman Brothers Holdings Inc. collapsed in the biggest bankruptcy in U.S. history. Chaori’s potential failure to pay investors would mark the first bond default in Asia’s largest economy, highlighting the strain in China’s $4.2 trillion bond market after a trust product issued by China Credit Trust Co. was bailed out in January. There haven’t been any defaults in China’s publicly traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s Investors Service.
Posted on: Thu, 06 Mar 2014 13:04:26 +0000
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