A former high-end restaurant company that switched its focus to the technology sector could become the first Chinese company to fail to repay principal on the public bond market.

Cloud Live Technology Group Co formerly known as XE Flavor Group Co, has said it is unable to raise the 240.6 million yuan ($39 million) needed to make note and interest payments due on Tuesday.

If a solution cannot be found before the deadline, it will become the first company to fail to repay principal to local bond investors.

Shanghai Chaori Solar Energy Science & Technology Co became the first Chinese company to default on interest payments in March last year.

XE Flavor, which served spicy food such as steamed fish head with diced hot peppers, had expanded rapidly up to 2013, opening chains nationwide.

But its fortunes changed when the Chinese authorities curbs on luxury spending hit the high-end catering industry, with the company's revenue and profit plunging.

In March last year, the company's chairman, Meng Kai, entered the entertainment business by acquiring a movie and TV company.

In July last year, Meng switched to Internet services and cloud technology, changing the company name. But in December, to repay the 480 million yuan principal on the bonds it issued in 2012, it had to sell all its XE Flavor trademarks for 230 million yuan. The price was cut by the buyer to 100 million yuan three months later.

In December, regulators said they were investigating whether Meng had violated securities laws. He resigned in early January, the company said. Meng had moved abroad in early October.

Cloud Live first raised major doubts over the deadline in February. Since then, many analysts have warned that a default is likely.

A statement issued by the company last week said it had raised 161.4 million yuan, or less than one-third of the debt. "To all bond holders, we extend our most sincere apologies," it said.

Analysts said a potential default risk had been revealed much earlier than last week's statement, so any negative sentiment has been absorbed over time.

The government is much more willing to tolerate individual default cases while remaining vigilant toward cases that would trigger "systematic or regional risk".

Premier Li Keqiang said in March that the government would prevent any systematic fallout while tolerating individual cases of financial risk.

Last week, Sunry Group, a construction company in Erdos, Inner Mongolia autonomous region, said it might fail to honor its redemption obligation on a bond due on April 18.

This was because its guarantor, Erdos Dongsheng City Construction Development Investment Group, had refused to meet its obligations, Caixin news magazine reported.