Foreigners Sweat as Chinese Firms Teeter

Foreign lenders that rushed into China in recent years are watching nervously as a number of companies there teeter on the brink of insolvency. Their worry: The nation's bankruptcy laws may leave them with virtually nothing, The Wall Street Journal reported. Several big Western investors--Citigroup Inc., hedge-fund manager Citadel Investment Group LLC, Credit Suisse Group and CLSA Capital Partners--are seeking to get back between $100 million and $200 million in loans extended to a Chinese steelmaker, according to people familiar with the matter. While they might recoup some of the money under a restructuring, a liquidation could wipe out the loans, one of these people said. For lenders doing business in China and contemplating insolvency proceedings, "you don't go there unless you have to," said David Kidd, head of restructuring at the Hong Kong office of U.S. law firm Allen & Overy. The problem: China offers virtually no road map for overseas investors facing a liquidation or restructuring. A new bankruptcy law went into effect in June 2007 that laid out procedures for companies forced into liquidation. But the courts have yet to indicate how they view claims from foreign investors. Read more. (Subscription required.)