(Bloomberg) – One of China’s biggest state investors has spurred a chorus of warnings about debt risks to cash-strapped domestic developers and local government lenders.
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According to the latest available figures, the National Council of Social Security Funds, which oversees about $417 billion, has told asset managers handling that money that some bonds, including high-risk LGFV and private developer bonds has recommended that it be sold after a review, said a person familiar with the matter. , we ask that you refrain from being identified to discuss personal information. Some of them said bonds of LGFVs in the indebted northern port city of Tianjin were chosen.
The recent bankruptcy of Sino Ocean Group Holding is a concern for the pension fund as one of the pension fund’s largest asset managers holds a large stake in government-backed developer debt, according to people familiar with the matter. is said to have increased This prompted a health check for exposure to riskier LGFVs and builders if the related bond price is below 95% of par, the people added.
The move highlights the difficult balancing act facing Chinese authorities trying to avoid credit market risks without destabilizing the financial system. Relieving the burden of weaker bonds may help the national pension protect investment value, but as the Chinese government seeks to restore confidence in the world’s second-largest economy, LGFVs and developer There is a risk of heightened market concerns over prudentiality.
Read more: Investors cut China’s LGFV bond maturity to lowest ever
A representative for the National Pension Fund declined to comment. According to the latest financial report, the institution will manage more than 3 trillion yuan by the end of 2021.
“The most important variable affecting China’s economic growth over the next two years will be the success or failure of local government debt restructuring and the Chinese government’s approach to the role of local government investment in the future Chinese economy,” said Rhodium. The group’s researchers said in a paper. Recent report. “If local government investment collapses, it will be comparable to the economic impact of the real estate market crisis.”
China’s sluggish economic recovery and housing crisis have reignited fears of ballooning local government debt, including about $9 trillion in debt held by LGFV, an off-balance sheet company tasked with building infrastructure projects. ing.
Bloomberg calculations based on available official data show that the city of Tianjin faced the biggest threat as of last year, with debt nearly three times its income.
In another sign of investor wariness over repayment risk in the sector, the average maturity of newly issued onshore LGFV corporate bonds fell to 2.51 years in the first half of this year, a Bloomberg data series that began at least 1999. Shortest since last year.
Meanwhile, the average coupon of LGFV yuan notes rose to 4.39% from 3.94% last year, while the coupon of Tianjin notes also rose by nearly 1 percentage point.
Bloomberg reported last week, citing people familiar with the matter, that Chinese authorities have shown a sense of urgency and have run out of cash by allowing more municipal bonds to be issued to pay off hidden debt in high-risk areas. They are considering plans to help cities and counties.
Bloomberg News Shareholder-led Task Force Hires Financial Advisors to Conduct Due Diligence and Work with Major Shareholders to Plan Debt Risk Resolution, Shows Growing Stress Among Chinese Developers China Ocean bonds plunged last week after Bloomberg News reported that it was working on
More broadly, the Bloomberg Index of China’s junk-dollar bonds, which are dominated by private developers, has fallen in five of the first seven months of this year, posting a 10% loss so far in 2023. there is
(Updates with comments, pricing and other details)
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