They said txat loans guaranteed by GITIC, an arm of the Guangdong provincial government and a major figure in international capital markets, could be called into question by anxious creditors eager to protect their financial exposure.

"You will have to look carefully at the terms of the loans," said Fraser White of law firm Clifford Chance.

China ordered the closure last week of GITIC, saying the Bank of China, a state-run commercial bank, would adoinister its debts and assets.

It had some $1.9 billion in foreign debt, including guarantees, according to an analyst. "They should still be in effect," he said.

But bankers currently involved in negotiations on repayments said they might have to cause a default on the underlying loans.

China has said that claims against GITIC could beregistered until January 6 next year and that it would not make any repayments before then.

"The banks might have to create an event of default on the loans," said a banker who declined to be identified.

"If the guarantor is insolvent, you have to protect your interest even if the loan is performing," said a foreign banker.

One of the problems is that China has not categorically said how creditors would be repaid.

While the central bank is probably waiting to assess the extent of the company's debts, it has not said whether it would repay all valid claims in full regardless of the size of GITIC's assets.

While some bankers said they did not believe they would resort to pushing a good loan into default because of the collapse of the guarantor, some bankers and laywers agreed that it could be a possible strategy.

"Clearly that is a possibility," White said.

GITIC provided a foreign currency availability guarantee for the $750 million project financing for the Shajiao power station "C" in thesouthern province of Guangdong.

It also was guarantor for a $130 million term loan for the Nanhai power plant and a $60-milion term loan for Zhongshan Jaifa power company among others, according to Basis Point.

A representative of Consolidated Electric Power Asia, which is responsible for the operation of the Shajiao power plant, told Reuters: "This issue will have no impact on the operation of the station."

The demise of GITIC, one of many investment and trust companies around the country known as ITICs, has inflicted considerable damage on the reputations of nearly all of these firms, analysts said.

Rating agency Moody's Investor Service had placed on review for possible downgrade the credit ratings of five such ITICs.