Guizhou Officials Seek to Reassure Bond Investors Amid Mounting Debt Concern

The debt-ridden government of Guizhou, one of China’s poorest provinces, is making efforts to restore confidence among bond investors by pledging supportive policies and zero defaults as the debt overhang rises to an officially alarming level in the southwest province.

The provincial government sought to reassure bond investors at a meeting last week by describing measures put in place to ensure repayment of locally issued bonds. In attendance were senior officials from provincial regulatory bodies, the central bank, the Shanghai and Shenzhen bourses and executives from multiple financial institutions.

Guizhou is one of the provinces closely watched by the market for climbing debt levels, although the province hasn’t reported a formal corporate bond default. As of the end of 2019, the provincial government had repayment obligations on 967.3 billion yuan ($139 million) of outstanding debt, the seventh-largest among China’s 31 provincial-level regions. The debt overhang was equal to 146.3% of the provincial government’s overall fiscal capacity, ranking at the top and far exceeding the 100% red line set by the Ministry of Finance.

At the meeting with investors, Deng Chenghong, deputy chief of Guizhou’s financial supervision and administration bureau, said the province will take effective measures to ensure repayments of bonds from local issuers.

“There won’t be a single default,” Deng said.

Jiang Zhiyong, deputy party chief at government-owned Guizhou Financial Holdings Group, pledged that the company will help local authorities defuse debt risks by providing liquidity support and guarantees.

Jiang said Guizhou State Asset Management Co., a wholly owned unit of Guizhou Financial Holdings, has set up plans to partner with financial institutions to purchase bonds issued by local government-backed investment vehicles in a bid to boost market confidence in Guizhou-related bonds.

“It is clear that Guizhou strives to support local bonds as it affects the province’s financing capacity,” a bond investment manager said. “Such official backing is helpful to local bond issuance, but investors are still awaiting concrete measures” that could provide new funding to improve the province’s capital condition, the manager said.

This was not the first time Guizhou officials stepped in to support local bonds. In October 2019, Guizhou Vice Governor Tan Jiong met with bond investors at the Shanghai Stock Exchange and pledged supportive policies to ensure repayment. The meeting came amid rising market concerns over Guizhou’s financial condition and debt risks after delayed payments last year. 　

Then in December, provincial government-owned liquor giant Kweichow Moutai Group transferred part of its controlling stake in Shanghai-listed Kweichow Moutai Co. Ltd., China’s most valuable mainland-traded company, to Guizhou State Asset Management. The transfer of about 57 billion yuan of Kweichow Moutai’s equity was intended to help alleviate Guizhou’s debt pressures and set an example of how local governments could leverage their state-owned assets to address debt problems.

Guizhou is among seven Chinese provinces that haven’t recorded a corporate bond default, according to Deng. But industry experts warned of mounting risks as several cities in Guizhou reported delayed repayment for nonstandard credit products such as trust loans.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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