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SHANGHAI: A Chinese bank may extend some short term loans to an insolvent fibre producer, Shandong Helon, to help prevent what would have been the first corporate default in the history of China's bond market, local media said on Saturday.

China's Evergrowing Bank, the lead underwriter of Shandong Helon's 400 million yuan ($63.51 million) commercial paper, was quoted as saying that it was in talks with regulators and that the local Weifang city government could provide a guarantee to the loans which the bank makes, the 21st Century Business Herald reported.

"We have not yet made a final decision but we believe we can reach a favourable outcome for all," the bank's board secretary was quoted as saying.

The official China Securities News on Friday quoted unidentified officials from the Weifang government, in eastern China, as saying they would ensure that Shandong Helon would be able to pay all principal and interest due on April 15, when the company's one-year paper matures.

Helon currently has at least 879 million yuan in overdue bank loans, equal to 557 percent of the parent company's net assets, according to a March 23 company disclosure.

A default by Shandong Helon Co Ltd which has 400 million yuan in commercial paper maturing on April 15, would send shockwaves through China's bond market, pushing up yields on lower-rated corporate paper, analysts say.

Several of its creditor banks, including China Everbright Bank, China Merchants Bank, and Shenzhen Development Bank, have sued the company for repayment of outstanding loans.

Copyright Reuters, 2012

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