Local Chinese governments will face mounting pressure to repay foreign debts as a large volume of bonds issued abroad by their financing vehicles will come due this year, the international rating firm Standard & Poor's said in a report.
More than $10 billion of offshore bonds issued by local governments’ financing vehicles to fund local investment are due this year, about one-third of their outstanding overseas debts, S&P reported. Despite the rising repayment pressure, the report found that no particular default risk has emerged regarding the bonds.
Local government units rushed to issue offshore bonds in 2016 after the central government eased requirements on such borrowing. Most of the bonds were set to mature in three years, according to the report.
Mounting repayments will test the borrowers’ liquidity and financial capacity. As some issuers may sell new bonds to raise funds for repayments, bond issuance costs in overseas markets are likely to rise, according to the report.