Govt financing vehicle in China’s Guizhou region extends debt by 20 years

A CHINESE government financing unit in the southwestern Guizhou province said it will extend the maturity of bank loans worth 15.6 billion yuan (S$3 billion) by 20 years.

China’s local governments, especially those in less-developed regions such as Guizhou, are struggling to meet debt obligations in an economy hit by Covid and a property downturn.

The debt extension comes after China’s Cabinet said last January it will allow local government financing vehicles (LGFVs) in Guizhou to delay debt payments and undergo debt restructuring.

LGFVs are typically investment companies that raise money and build infrastructure projects on behalf of local governments.

Zunyi Road and Bridge Construction (Group) Limited said in a statement on Friday it had agreed with financial institutions on a debt restructuring plan.

The plan allows interest rates of the US$2.3 billion loans to be adjusted to between 3 per cent and 4.5 per cent per year, and the company will only pay interest without principal during the first ten years of the extension.

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“The debt restructuring can help the company alleviate short-term debt repayment pressure and optimise debt structure,” it said.

“The debt extension means related bodies’ debt default risks are imminent, and there is no more buffer space before the risks being exposed,” Huaan Securities analysts said in a note.

TF Securities said markets are still very worried about the recovery of local governments’ fiscal condition in 2023.

“After all, the real estate market is still weak, and the uncertinty of Covid is still weighing on the stabilisation of fundamentals.” REUTERS