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Bond Market News
Chinese LGFVs Show Signs of Debt Risks
September 1, 2022
Financial concerns and potential restructuring risks are now emerging in China’s local government financing vehicle (LGFV) space, particularly for those companies in “weaker parts of the country”, as per Bloomberg. For example, Lanzhou City Development Investment Co. made the payment on a maturing RMB 700mn ($102mn) bond on Monday night after the Shanghai Clearing House issued a notice that it had not been made, signaling a last minute repayment. This was after Lanzhou LGFV recently failed to make payments on trust debts. Moody’s said, “We expect some financially weak LGFVs owned by low-tier governments in economically weaker regions will consider negotiating with bondholders to extend maturing bonds… Even if regional and local governments are very willing to support LGFV debt, those (governments) that are fundamentally weak may run out of resources to support them”. While offshore debt issuance volumes from China have been very muted this year, LGFVs have taken to the primary debt markets. Bloomberg adds that LGFV debt has seen interest particularly because of the broad risk-off sentiment in the region and the record number of defaults across China’s property sector.
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