China’s Cloud Live Technology Sparks Corporate Default Worries
Cloud computing firm says it is unable to repay $38.8 million in debt
Updated April 3, 2015 8:05 a.m. ET
BEIJING—A restaurant chain that abruptly shifted into cloud computing and is under regulatory scrutiny could become the first Chinese company to fail to repay principal to local bond investors.
Cloud Live Technology Group Co. said it is unable to pay back 240.6 million yuan ($38.8 million) in debt due Tuesday. In a Thursday filing with the stock exchange in the southern Chinese city of Shenzhen, Cloud Live said it had raised 161.4 million yuan to pay back about 400 million yuan in debt sold three years ago.Still, Cloud Live said it might not be able to pay back the remainder. “To all bondholders we extend our most sincere apologies!” it said in the filing. Enquiries to company phone and fax lines weren’t answered.
Potential Chinese corporate bond defaults have been closely watched amid a slowdown in the country’s growth and as companies in a number of industries grapple with high debt levels. The first such default occurred last year, when Chaori Solar Energy Science & Technology Ltd. missed interest payments worth 89.8 million yuan.
Still, China has shown little willingness to let corporate bond investors take a hit. Chaori’s restructuring package made bond investors whole, in what analysts said was asign of official worry that defaults could scare investors away from China’s corporate bond market, which is still relatively young.
A second Chinese company, Xuzhou Zhongsen Tonghao New Board Co., missed an interest payment last year, but regulators said the bond’s guarantor had agreed to pay investors back.
China’s corporate bond market has grown quickly as companies seek new funding sources. The volume of domestic corporate bonds issued rose 46% in 2014 to 696.2 billion yuan from 475 billion yuan a year earlier, according to ChinaBond, a data service run by the official China Central Depository & Clearing Co.
Cloud Live’s Thursday disclosure to the Shenzhen exchange was the latest development in a run of trouble for a tech company that until last year ran restaurants and was famous for delicacies such as fish heads. In December, Chinese regulators said they were investigating whether Chairman Meng Kai violated securities laws. He resigned in early January, the company said. Mr. Meng couldn’t be reached and Cloud Live didn’t respond to requests for his contact information.
As of late December, Chinese regulators had frozen Mr. Meng’s shares in Cloud Live, which represent a stake of nearly 23%.
Until last year, Cloud Live was known as Beijing Xiangeqing Group Co. It ran 18 restaurants specializing in fiery fare from China’s Hunan province and the surrounding area. It was long a favorite of Chinese officials, but that business has been hurt by President Xi Jinping’s drive to enforce official austerity. Last year, it lost 564 million yuan.
In May, the company that became Cloud Live said it would raise 3.6 billion yuan by selling new shares in a private placement to fund an expansion into big data and cloud computing. At the time, it said the shift could be expensive and wouldn’t lead to short-term payoffs.
Cloud Live agreed in December to sell its restaurants to a catering company for 230 million yuan, according to filings. But it cut the sale price to 100 million yuan, citing negative media coverage, it said.