December 26, 2016 / 3:32 AM / a year ago

China's Dalian Machine Tool Group acts to avoid cross-default in grace period

SHANGHAI, Dec 26 (Reuters) - China’s state-owned Dalian Machine Tool Group Corp said it would take measures to avoid default on short-term bills after it was granted a 30-day grace period by bondholders.

If the company fails to remedy the problem by Jan 19, it would join a run of corporate defaults by companies in sectors such as machinery, coal and steel in which there is chronic overcapacity and they struggle to pay their debts.

Dalian Machine Tool was put in technical default on the bills after a default on a separate debt agreement triggered a cross-default provision.

Under such a provision, a borrower would be in default on a bond agreement if it cannot honour another obligation.

Dalian Machine Tool said its bondholders have agreed to grant the company a 30-day grace period starting Dec 21, during which it must either increase collateral or buy back the bills, to avoid the “cross default”.

Dalian Machine Tool issued the statement, dated Dec 22, on the website of the Shanghai Clearing House on Monday. ($1 = 6.9488 Chinese yuan renminbi) (Reporting by Samuel Shen and John Ruwitch; Editing by Eric Meijer)

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