By Kate Yuan

(JW Insights) Jun 16 -- A Hong Kong court ruled that Tsinghua Unigroup (紫光集团) breached a payment support agreement tied to dollar bonds, which may revive some confidence in China’s offshore credit market, Bloomberg reported on June 15.

Unigroup, a semiconductor giant previously affiliated with the elite Tsinghua University, was ordered to pay $483.8 million for failing to honor a so-called keepwell deed meant to backstop its US-currency notes. The lawsuit, filed by bond trustee Citicorp International about two years ago, involves a $450 million bond from a Unigroup unit, according to data compiled by Bloomberg.

A keepwell is an agreement from the parent company of a unit issuing a bond to maintain the issuer’s solvency while stopping short of guaranteeing payment.

Investor mood suffered a setback last month after the same Hong Kong court threw out three of four similar lawsuits against Peking University Founder Group, another major defaulter.

A “major difference” between Unigroup and Founder cases is that “the default on bonds issued by the Tsinghua Group, which lead to the present claims, took place before Tsinghua was ordered into reorganisation on 16 July 2021. This is not the case in Peking Founder,” the court ruling cited Judge Jonathan Harris as saying. He also presided over the Founder cases.

“The court accorded differential treatment to the claimants in the Tsinghua and Peking Founder cases on the basis of timing: whether or not the breaches took place before the keepwell provider went into reorganisation,” said Tony Chow, director of restructuring and insolvency at law firm King & Wood Mallesons, according to the Bloomberg report.