Traders Seize on China Power Firm’s Possible Dollar-Bond Misstep

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(Bloomberg) — Traders have seized on a bond-market technicality in an attempt to more than double the yield on a dollar note issued by one of China’s biggest energy infrastructure firms.

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The trade hinges on whether Power Construction Corp. of China missed a deadline to deliver a dollar-bond redemption notice to its trustee when the company filed it with the Hong Kong stock exchange on March 3. If it did, the coupon on the bond could jump to more than 8% from 3.08% as a clause in the prospectus is triggered.

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Investors are asking the trustee for clarity and are seeking legal advice before deciding on their next steps, people familiar with the matter said. Several traders, who asked not to be named discussing their transactions, said they quickly bought the bonds.

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While PowerChina, as the company is known, has stated that its redemption schedule aligns with market practice, the episode underscores how easily legal disputes may arise from ambiguous language in bond documentation. It also illustrates the hyper-vigilance of some market participants, who scour filings for technical slip-ups that can turn into lucrative windfalls.

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According to the bond’s prospectus, the Chinese power giant must deliver a redemption notice to the trustee at least 30 days before the April 1 call date. 

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The trustee, China Construction Bank (Asia), told some bondholders late Wednesday that it received the notice on March 3, according to the people. That timing would amount to only 29 days’ notice — potentially falling short of the requirement — if the April 1 redemption date is excluded from the calculation. 

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If the redemption date is included, however, PowerChina would meet the 30‑day threshold. China Construction Bank (Asia) didn’t respond to a request for comment.

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In a statement, PowerChina said it intends to pay both interest and principal on the dollar bond by April 1. The company emphasized that the prospectus language about excluding the fixed redemption date applies only to the calculation of distribution dates. It added that the terms do not contain similar provisions governing the calculation of the redemption notice period. 

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“The issuer has consistently fulfilled its obligations and has made distribution payments on time when due,” according to the statement. “The issuer believes that the early redemption is in line with market practice for perpetual securities, consistent with investors’ expectations for such instruments, and will not cause any harm to investors.”

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PowerChina’s redemption bid is reminiscent of other state-owned companies. In 2022, China National Chemical Corp. and State Power Investment Corp. missed deadlines in their attempts to redeem perpetual bonds, according to a note by Bloomberg Intelligence credit analyst Andrew Chan.

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—With assistance from Yuling Yang.

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