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Bloomberg
China Guangfa Bank Co. said on Monday that documents and seals for a letter claiming to guarantee bond payments by the lender were forged, in the second such incident in the nation this month, raising concern about transparency in the world’s third-biggest bond market.
The revelation by the bank based in the southern province of Guangdong comes after Zheshang Property & Casualty Insurance Co. said on Dec. 23 it’s in touch with Guangfa Bank over payments on Cosun Group’s private bonds guaranteed by the lender’s unit after the notes defaulted on Dec. 20.
A lack of transparency and protection in bond documentation are adding to angst among investors after Sealand Securities Co. said earlier this month a former employee was found to have forged a seal to conduct bond trading. Concern about China’s bond market has been climbing after at least 28 onshore notes defaulted this year amid an economic slowdown, jumping from seven in 2015.
Investors are demanding a higher reward to park money in the nation’s corporate debt. The yield premium of seven-year AAA corporate bonds over government notes has widened 44 basis points this month, set for the biggest
increase since 2007.
Sealand said on Dec. 21 it will fulfill bond contracts that were stamped with a forged seal. The brokerage had refused to take over unspecified securities held by its counterparties in a so-called entrusted holding agreement, because the pact may be tied to alleged fraud by some ex-staff, according to an Oversea-Chinese Banking Corp. note last week citing media reports that it didn’t identify.