December 27, 2016 / 1:59 AM / in 8 months

China's Sealand signs deal to resolve "forged" bond dispute

SHANGHAI, Dec 27 (Reuters) - Sealand Securities, which triggered a rout in China's bond market over the past two weeks, has signed separate arrangements with seven counterparties in a bid to resolve a scandal involving "forged" bond agreements, it said on Tuesday.

"The company is operating normally with a sound financial situation, and liquidity risks are under control," Sealand said in a filing to the Shenzhen Stock Exchange.

The brokerage said last week that it had reached a "consensus" with counterparties to share potential losses stemming from "forged" bond agreements with a total value of no more than 16.5 billion yuan ($2.37 billion).

Liquidity in the market was squeezed after the media reported on the "forged" Sealand bond agreements earlier last week, sparking volatility and undermining investor confidence.

"Bond agreements", known as entrusted bond agreement business, were widely used by securities firms to obtain leverage for bond transactions in order to meet guaranteed returns to investors.

Sealand defaulted on a bond transaction with Bank of Langfang, in China's northern Hebei province, following the recent tumble in bond prices, according to local media.

Sealand said it had no agreement with Bank of Langfang on a bond transaction agreement and its company seal had been forged by two former employees.

But the brokerage later used the wording "forged bond agreement" in a filing to the stock exchange and said it would take responsibility for the documents to resolve the issue. ($1 = 6.9480 yuan) (Reporting By Winni Zhou and David Stanway; Editing by Eric Meijer)

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