China’s LGFVs must repay a record US$651 billion of bonds in 2024
- Beijing has taken some steps to alleviate China’s long-standing problem with local debt, such as letting local governments swap some LGFV debt for low coupon bonds
- Although the plan covers a tiny fraction of the roughly US$9 trillion in debt those companies are estimated to hold, a surge in early repayment of debt followed
China’s local government financing vehicles (LGFV) need to pay back a record amount of maturing local bonds this year, testing the limits of a central government program to help them refinance their debt and avoid default.
The nation’s LGFVs — the companies that borrow on behalf of provinces and cities to finance mainly infrastructure projects, such as roads and ports — have 4.65 trillion yuan (US$651 billion) worth of bonds due over the next 12 months, according to Bloomberg-compiled data. That’s the highest amount on record, and is roughly 13 per cent more than what came due last year.
“Containing the credit contagion and the systemic financial risk from the LGFV sector remain top priorities for the central government this year,” said Zerlina Zeng, senior credit analyst at Creditsights.
Beijing has taken some steps to alleviate China’s long-standing problem with local debt, providing optimism to investors looking for signs any financial risk from the buildup of such debt is contained. Last year, authorities introduced a program worth at least 1 trillion yuan allowing local governments to swap some LGFV debt for official bonds carrying lower interest rates, Bloomberg News reported in August.
While that plan covers a tiny fraction of the roughly US$9 trillion in debt those companies are estimated to hold, the country saw a surge in early repayment of debt following the roll-out of that measure.
The moves by Beijing seem to have helped ease the nerves of traders, at least temporarily. The spread on low-rated Chinese LGFV notes narrowed to a record in November, just a couple months after the swap program began.