No end to municipalities’ power in ChinaCo bankruptcies

Author: Ashley Lee | Published: 17 Dec 2014

Onshore ChinaCo bankruptcies will continue to prioritise social stability and local interests over more esoteric financial concerns such as capital structures, according to a report by Fitch Ratings.

Defaults by Chinese companies have been resolved through notably different routes over the past few years. FerroChina’s restructure in 2009 reassured offshore creditors, while Suntech Power’s 2013 default and subsequent onshore restructuring left foreign investors out.

The 2007 bankruptcy law requires courts to consider local government interests ahead of creditors. But it’s not only offshore creditors who are affected by the bankruptcy regime’s focus on stability.

According to the Fitch report, banks and trade creditors are prone to making the greatest compromises – even if they’re usually among the largest common-claim creditors.

Instead local government interests are...