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December 27, 2016

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Bank calls bond documents ‘fake’

THE fate of a defaulted US$45 million Chinese corporate bond sold through an Alibaba-backed online wealth-management platform was thrown into doubt yesterday, after a bank said letters of guarantee for the bond were counterfeit.

China Guangfa Bank said guarantee documents, official seals and personal seals presented by the insurer of the bond “are all fake” and that it has reported the matter to the police as “suspected financial fraud.”

The dispute highlights challenges in China’s loosely regulated online finance industry, where retail investors often buy high-yielding bonds and other assets, expecting them to be “risk-free” due to guarantees provided by various parties.

At the center of the latest dispute is a high-yielding bond worth 312 million yuan (US$45 million) issued by southern Chinese phone maker Cosun Group that defaulted this month.

The bond was sold through Zhao Cai Bao, an online platform run by Ant Financial Services Group, the payment affiliate of e-commerce giant Alibaba Group Holding Ltd.

Ant Financial has asked Zheshang Property and Casualty Insurance Co, which wrote insurance on the bond, to repay investors.

On Sunday, Zheshang Insurance published two documents on its website that it said were from Guangfa Bank carrying the lender’s official seals, and that guaranteed Zheshang Insurance policies for the Cosun bond.

The letters were issued at Guangfa’s Huizhou branch in December 2014, when the Cosun bond was sold, Zheshang Insurance said.

The dispute follows instances of financial fraud this year including forged bond agreements that led to brokerage Sealand Securities sharing potential losses of up to US$2.4 billion.

In May, the government advised banks to be vigilant after several cases of bill fraud.

On December 20, Ant Financial said Zheshang Insurance “hasn’t any reason to refuse repayment” which it was obliged to do “within three days” of default.

On Friday, an Ant Financial spokeswoman said the Cosun bond default was “a one in billion incident” on the platform.

Cosun’s bond issuance totaled 1 billion yuan, according to Zheshang Insurance. The insurer’s total registered capital is 1.5 billion yuan.


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