Financing companies for China’s cities are venturing overseas as the government clamps down on fundraising onshore amid mounting concern about record debt.
Qingdao City Construction Investment Group Co., a local government financing vehicle on the country’s east coast, is meeting with international bond investors this week, according to a person familiar with the matter. Zhuhai Da Heng Qin Co., a builder of bridges and roads in the city of Zhuhai near Hong Kong, issued 1.5 billion yuan ($239.5 million) of offshore yuan bonds in December. Beijing Infrastructure Investment Co. sold $1 billion of notes in the US currency in November after becoming the first LGFV to issue Dim Sum securities in June, Bloomberg reported.
“Issuing offshore bonds is another financing channel for the LGFVs given the tight liquidity in the onshore market,” said Joe Poon, an associate director of corporate ratings at Standard & Poor’s. “There could be more similar deals to come if Qingdao City receives good response.”
Premier Li Keqiang is reining in borrowing by the financing arms for bridges, sewage systems and roads just as they must repay a record 558.7 billion yuan of bonds this year amid the slowest economic growth in more than two decades. The units sold the least amount of onshore yuan notes in 17 months in January, after the State Council said in October they can no longer raise funds for local authorities and that governments needn’t repay debt not raised for public projects.
Debt Due
Qingdao City Construction must repay 2.9 billion yuan of bond principal and interest this year, according to data compiled by Bloomberg.
An official at the company who declined to give his name said it can’t provide more details about the planned bond sale because the investor meetings haven’t finished yet.
Chinese LGFVs were set up to fund infrastructure projects after a 1994 budget law banned regional authorities from directly issuing bonds. Local-government debt swelled to 17.9 trillion yuan as of June 2013, compared with 10.7 trillion yuan at the end of 2010, data compiled by the National Audit Office show.
China’s provinces submitted reports classifying all local borrowings within their borders including those of LGFVs as either government debt or not government debt on Jan. 5. The financing arms issued 73.3 billion yuan of notes in January, the least since August 2013, according to data compiled by Bloomberg.
