Investors appeared unfazed by the impending default. The size of Huatong's debt is relatively small and traded in the interbank market among institutional investors. Even if the default had materialized, it would have had limited impact on institutions that hold the bond.

Analysts say Huatong has sound operating fundamentals but has difficulties getting its account receivables paid and converting its stock assets into cash. Most of the projects the company is involved in are construction of infrastructures for local governments.

Rating agency China Credit Rating Co, Ltd said that even if Huatong could not have paid back the principal and interest on time, given its low leverage, the company could have met its obligation at a later date.

The possibility of default underscored the risk stemming from the company's over-reliance on its actual controller, Wang Guorui, who holds the single largest stake of the firm, at 60.25 percent, the rating agency added.

"This is an isolated case and will have limited impact in the interbank bond market," said Qin Xinfeng, a trader with Qingdao Rural Commercial Bank, which participates in interbank trade but does not hold the short-term bill issued by Huatong.

"But private companies with low credit ratings will come under greater pressure in the future while bonds issued by state-owned firms and local financing vehicles will grow more favorable among investors given the implicit guarantee from government," Qin said.

China's onshore bond market is the world's third largest, after the United States and Japan. As of the end of last year, outstanding bonds stood at 29.6 trillion yuan and some 9 trillion yuan worth of bonds were issued that year, according to Standard Chartered.

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