China’s Opaque ‘Keepwell’ Bonds Face New Test as Ruling Nears

China’s $740 billion offshore bond market awaits a fresh test of how creditors are protected by an ambiguous form of payment support, as a key court decision looms for one of the country’s biggest defaulters.

A five-day trial concluded Tuesday in Hong Kong involving lawsuits effectively filed by holders of Peking University Founder Group Corp. dollar bonds with so-called keepwell deeds, a vague pledge of funding support from issuers’ parent companies. A ruling on whether the delinquent borrower should honor those obligations is expected after a final hearing on Feb. 3, according to Judge Jonathan Harris.

His decision will shed ...