HONG KONG (BLOOMBERG) - A Chinese ham producer has come up with an innovative way to pay its creditors. Some holders of its debt will now receive its pork products instead of interest payment.

Zhengzhou-based pork producer Chuying Agro-Pastoral Group Co said it has reached an initial agreement with creditors holding 271 million yuan (S$53.7 million) of its debt over such a plan, according to a filing on the Shenzhen Stock Exchange on Thursday (Nov 8). Only the interest portion will be repaid with ham or pork gift packages, it said.

The announcement came after the company failed to repay 500 million yuan local bonds due Nov 5. amid a cash crunch resulting from a drop in demand for pork products thanks to the spread of African swine fever. As of Sept 30, the company had 1.3 billion yuan cash, compared with short-term debt of 8.4 billion yuan, according to Bloomberg-compiled data.

"Payment in kind is generally not seen as acceptable for debt repayment," said Judy Kwok-Cheung, director of fixed income research at Bank of Singapore. This implies increasing liquidity concerns for for small and medium-sized enterprises in China, she said.

"Liquidity injection from the government directed at helping SMEs has eased concerns somewhat, but the market potentially needs more," according to Kwok-Cheung.

A gift package of Chuying Agro-Pastoral's ham costs 8,999 yuan (S$1,780) on the e-commerce website of JD.Com.