Hainan International Trust and Investment Corp (HITIC), owned by the government of China's freewheeling southern island province of Hainan, was due to make the interest payment to holders of its 14.5 billion yen ($135.6 million) Samurai bond on June 26.

Failure to pay within 14 days after that date - by Monday - would mean the bond being in default, they said.

No payment had been received by the close of business on Monday, though an official close to the deal said the Japanese payment agent was prepared to wait until midnight (1500 GMT).

The incident is bound to stir up old fears about the credibility of China's financial institutions, still in the shadow cast by the Guangdong International Trust and Investment Corp (GITIC), which filed for bankruptcy in January 1999 with some $4.7 billion of debt.

"Investors still haven't received the payment from HITIC. Technically, it looks impossible from them to receive the money on Monday as Japanese financial firms have wound up their operations for the day," a market source close to the deal said.

"Under the terms, the bond will be considered in default. Even if the money is received by the payment agency, it cannot be delivered to holders of the bond by the end of the day."

Another underwriting source said: "This kind of payment is customarily made to the payment agent a day or several days in advance to make sure that funds can be allocated to holders.

"But investors still hadn't received any payment as of late afternoon. We're waiting for the response of the payment agent."

The lead trustee or payment agent, Shinsei Bank, formerly called the Long-Term Credit Bank of Japan, declined comment.

"We cannot make any comments. If we are required to supply information to investors, it will be publicised through an advertisement in (Japanese) newspapers," a bank official said.

The official did not elaborate further, as the agent is not allowed to make any exclusive comments to individual news media or to an individual investor under the terms of the bond.

A company official close to the deal said Shinsei Bank was prepared to wait until the end of Monday.