HITIC on Brink of Samurai Bond Default

Fears that a Chinese investment trust may default on a Samurai bond rose when it failed to make an interest payment by the close of business on Monday, underwriting sources in Tokyo said.

Hainan International Trust and Investment Corp (HITIC), owned by the government of China's southern island province of Hainan, was due to make the interest payment to holders of its 14.5 billion yen ($135.6 million) Samurai bond on June 26.

Failure to pay within 14 days after that date -- by Monday -- would mean the bond being in default, they said.

No payment had been received by the close of business on Monday, though an official close to the deal said the Japanese payment agent was prepared to wait until midnight (1500 GMT).

"Investors still haven't received the payment from HITIC. Technically, it looks impossible from them to receive the money on Monday as Japanese financial firms have wound up their operations for the day," a market source close to the deal said.

"Under the terms, the bond will be considered in default. Even if the money is received by the payment agency, it cannot be delivered to holders of the bond by the end of the day."

Another underwriting source said: "This kind of payment is customarily made to the payment agent a day or several days in advance to make sure that funds can be allocated to holders.

"But investors still hadn't received any payment as of late afternoon. We're waiting for the response of the payment agent."

The lead trustee or payment agent, Shinsei Bank, formerly called the Long-Term Credit Bank of Japan, declined comment.

"We cannot make any comments. If we are required to supply information to investors, it will be publicised through an advertisement in (Japanese) newspapers," a bank official said.

The official did not elaborate further, as the agent is not allowed to make any exclusive comments to individual news media or to an individual investor under the terms of the bond.

A company official close to the deal said Shinsei Bank was prepared to wait until the end of Monday.

"I've heard the payment agent will wait for HITIC's payment until midnight today. Under the usual terms, if holders don't receive payment by the schedule then it will be considered in default," the official said. "But the payment agent will make the final decision."

Chinese officials and the central bank didn't comment on Monday on when or if HITIC would make the payment.

"The company is being restructured now," said an official of the Hainan province branch of the State Administration of Foreign Exchange, which is responsible for registering foreign debt.

"The provincial government should be the one to pay," he told Reuters from the provincial capital of Haikou.

Last week, Hainan province Governor Wang Xiaofeng said the central government had become involved in resolving the matter.

But he did not say if HITIC, which is owned by the provincial government, would meet its payment obligations.

An actual failure would mark the third default of publicly placed bonds in the Samurai market after the defaults of Hong Kong investment bank Peregrine Investment Holdings and Indonesia's Dharmala Intiutama International BV in 1998.





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