S&P Global Ratings says China to see first bond default by a local government financing vehicle in 2018
S&P also expects the number of defaults in the world’s second-biggest economy to increase as companies fall victim to tightening liquidity
China is likely to see the first bond default by a local government this year, as Beijing tightens liquidity as a way of deleveraging an economy facing increasing financial risk, according to S&P Global Ratings.
The implicit support for “local government financing vehicles”, known as LGFVS, will be tested as the nation’s top policymakers are adamant to control financial risk in the face of runaway debt in some regions, it said.
“LGFVs deserve special attention,” the global rating agency added in a report released on Tuesday.
“The risk of LGFVs defaulting on their bonds has increased, which is why we may well see the first LGFV default in the bond market.”
S&P also expects the number of defaults in the world’s second-biggest economy to increase as companies fall victim to tightening liquidity.