China allows Peking University Founder Group’s finance unit to enter bankruptcy process
- The China Banking and Insurance Regulatory Commission has approved Peking University Founder Group’s finance unit to enter bankruptcy process
- A consortium led by Ping An Insurance and Huafa Group is undertaking the restructuring of PUFG approved in 2021
The financial unit of Peking University Founder Group (PUFG), the business arm of one China’s most prestigious colleges, has received the go-ahead from the country’s banking and insurance regulator to enter bankruptcy proceedings.
The China Banking and Insurance Regulatory Commission (CBIRC) has given preliminary approval for Peking University Founder Group Finance to enter the bankruptcy process, according to a statement posted on the regulator’s website on Tuesday. Founder Group Finance, which was launched in 2010, provides financial services to PUFG and its subsidiaries.
“The company should move forward with follow-up work in accordance with related laws,” the statement said. “If it encounters any serious issue, the company should report to the CBIRC on time.”
“Generally speaking when it involves the insolvency of a financial institution, the CBIRC will intervene in the procedure before it officially goes bankrupt to ward off any instability in the financial system,” said Weng Guanxing, head of law firm Wintell & Co’s Lingang office in Shanghai.
The CBIRC’s initial approval comes as conglomerate Ping An Insurance Group undertakes PUFG’s restructuring following its debt defaults starting in 2019. PUFG had interests in industries ranging from software development to securities trading and real estate.
“It could be a part of PUFG’s restructuring work,” said Ho Look-chan, a barrister with Des Voeux Chambers, adding that it is hard to accurately predict the next move after the bankruptcy. “Generally speaking, in restructuring, the shareholder will try to keep the important businesses while disposing of the noncore ones.”
On February 14, 2020, Bank of Beijing, one of its creditors, applied to a court to force PUFG into a restructuring under the bankruptcy law, with the approval coming five days later.
The default on the yuan-denominated bonds also led to cross defaults on US$3 billion worth of bonds. Most of the bonds were supported by PUFG via keepwell deeds, undertakings by Chinese companies to guarantee the solvency of their subsidiaries when they sell debt in offshore markets. However, these deeds are no guarantee that financial support will come in a pinch.
However, the state-appointed restructuring administrator decided in 2020 to not recognise about US$1.7 billion worth of keepwell deed claims for bonds issued by the troubled group.
China’s best-known borrowers have used keepwell deeds as a sign of their willingness to provide support for affiliates, including oil and gas giant Sinopec, property developer Vanke and conglomerate Dalian Wanda.
