One of China's biggest investment banks has reportedly defaulted on a dim sum bond

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An arm of one of China's largest investment banks, Guosen Securities, has reportedly defaulted on a bond traded in Hong Kong. The default is the first by a state-owned enterprise in the Chinese offshore market in nearly 20 years.

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The news was first reported by the Financial Times, which says that Guosen's Hong Kong arm has defaulted on a dim sum bond, and will miss a coupon payment worth 38 million renminbi (£4.1 million; $5.9 million) on April 24, according to a document seen by the FT.

At their most basic level, dim sum bonds are bonds issued outside China, but denominated in renminbi, rather than the currency of the country where they're issued. The bonds first became popular in 2010, when the Chinese government wanted to encourage the renminbi to be used as an international currency.

That encouragement led to renminbi stockpiles to develop in Hong Kong and other offshore hubs, which in turn meant that dim sum bonds generally come with lower interest rates than debt issued onshore in China.

According to analysts the FT spoke to, the default could set a big precedent for the offshore units of Chinese companies in terms of defaults. Until now, it is argued, offshore units of state-owned Chinese companies have assumed that their parent companies will stop any default, but Guosen Hong Kong's default seems to have put paid to that belief.

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While defaults in China's capital markets aren't hugely unusual, the big shock when it comes to Guosen's default is the fact that, as a whole, the bank seems to be in a pretty sure state financially. In January, it reported net profits of 14.2 billion renminbi (£1.5 billion; $2.2 billion), a 188% increase from the previous year. Guosen was also the eighth biggest brokerage in terms of total assets at the end of 2014, when the most recent figures were released.

Investors in Guosen, which trades its shares in the city of Shenzhen, don't seem to be too worried by the news so far, and shares closed 0.49% higher on Thursday.

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