Some corporate bonds offer implicit promises to support but while they sound good in theory, it is difficult to rely on them in practice.

The recent developments with China Huarong Asset Management (Huarong) have highlighted the pitfalls of over-relying on implicit external support or a “promise” to support in times of need.

Huarong’s US dollar bond prices fell to distressed levels in April despite the company’s investment grade rating following a combination of events, including the trading suspension of its equity on the Hong Kong Stock Exchange. The delay in the issuance of its annual report and limited official government announcements have been cited as results for this.

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