Peking Founder Restructuring Shows Limitations of China's Keepwell Deeds

The restructuring of China’s Peking University Founder Group Corp (PUFG) highlights the limitation of keepwell deeds in protecting investors, ratings agency Moody’s said on Monday, casting a cloud over a structure used in almost $100 billion worth of Chinese dollar bonds, Reuters reported. Keepwell deeds are used by some Chinese companies to facilitate offshore bond sales by their subsidiaries. State-owned Peking Founder in February confirmed its failure to repay an onshore bond had led to a cross-default on $3 billion of offshore bonds. Most of the bonds were supported by Peking Founder via keepwell deeds. Moody’s said in a report on Monday that under the ongoing restructuring, it was not yet clear whether the court would recognise those keepwell-backed bonds as debt obligations of Peking Founder, the deed provider. If not, bondholders will lack direct recourse to Peking Founder, potentially leading to low recovery and high loss. Read more

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