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A Chinese sausage maker said it’s not sure if it can repay a bond after its director was put under house arrest, the latest case in China mixing corporate governance and debt problems.

Based in the eastern province of Jiangsu, Nanjing Yurun Foods Co. is suffering cash shortages and great risks in its finances and operations, it said in a statement posted on the Chinamoney website. The company, which sold 1.3 billion yuan ($206 million) of bonds at a yield of 5.49 percent in 2012, must repay 1.37 billion yuan in principal and interest due Oct. 18, according to the statement. As that’s a Sunday, the effective due date is the following day, it says.

Investors are growing alarmed as slowing economic growth and a fight against corruption compound strains in China’s 42.2 trillion yuan bond market. There have been four defaults this year, including one by China National Erzhong Group Co., according to China International Capital Corp. Kaisa Group Holdings Ltd. became the first Chinese developer to renege on a debt obligation in the offshore bond market in April after founder Kwok Ying Shing resigned amid a corruption probe.

“Corporate governance issues are more easily exposed when the economy is not doing well,” said Ivan Chung, a senior vice president at Moody’s Investors Service in Hong Kong. "Because many of those companies don’t have good succession plans, investigation into a key manager could affect the company as a whole.”

Designated Residence

Hong Kong-listed China Yurun Food Group Ltd., parent of Nanjing Yurun, said earlier this year honorary chairman Zhu Yicai’s family informed it that the People’s Procuratorate was restricting Zhu to a designated residence from March 23, according to a statement. The company said at the time it hadn’t received any legal documents from the procuratorate or any government authorities on the matter. Monday’s statement said Zhu’s situation had "indirectly affected" operations, without elaborating on his current status.

Nanjing Yurun Foods suffered a loss of 400 million yuan for the first half of this year. It is still trying to raise money to repay the debt, today’s statement said.

— With assistance by Lianting Tu, and Judy Chen