A Chinese power company failed to make an interest payment on a bond on Tuesday, marking the first time a State-owned firm has been allowed to default and adding to evidence that the government is slowly withdrawing its sovereign guarantee for low-quality bonds.

Baoding Tianwei Baobian Electric Co said in a statement on the China bond clearinghouse website that it was unable to make the 85.5 million yuan ($13.8 million) interest payment on time.

It was the third listed Chinese firm to publicly default on an interest payment to bond investors on an onshore issue, but the first owned by the State.

The default "might destroy the ironclad guarantee reputation of central government-owned issuers," analysts at China Chengxin International Credit Rating Co wrote in a research note before the default.

But they added that the low grade of Tianwei and the other defaulters limited the market impact of any defaults.

The news comes shortly after a full default on both principal and interest by Cloud Live Technologies earlier this month, and a more recent offshore default by Kaisa Group, the first Chinese developer to default on dollar bonds. Investors are now eyeing developer Glorious Property Holdings, whose bond payment comes due on Saturday.

But defaults on bonds sold to foreigners offshore have failed in the past; what the Chinese system has struggled with is allowing domestic defaults. The first default in 2014 by a small private solar power company ultimately ended in a bailout several months later.

Baoding Tianwei Baobian Electric Co is a subsidiary of the Baoding Tianwei Group, which owns 23 percent of the listed entity. Baoding Tianwei Group is in turn entirely owned by the Beijing-based China South Industries Group, which advertises itself as a part owner of Changan Automobile Group on its corporate website as well as a major defense equipment maker. It is directly owned by the central government.

Calls to the company were not answered, but investors appeared to have taken the lack of a rescue in their stride, with bond markets shrugging off the news.

Reuters