Caixin
Dec 03, 2020 04:02 AM
FINANCE

Guangdong to Pour $1.5 Billion From Bond Sales Into 4 Rural Banks

Guangdong Yuecai Investment Holdings Ltd. Co. will use the borrowings to acquire stakes in four rural commercial banks.
Guangdong Yuecai Investment Holdings Ltd. Co. will use the borrowings to acquire stakes in four rural commercial banks.

Guangdong province plans to issue 10 billion yuan ($1.52 billion) of special-purpose bonds to recapitalize four rural commercial banks, becoming the first local government to use part of this year’s quota of such borrowings to replenish bank capital.

Yunan Rural Credit Cooperatives will receive 4 billion yuan from the special-purpose bonds (SPBs), Puning Rural Commercial Bank 3.7 billion yuan, Jiedong Rural Commercial Bank 1.4 billion yuan, and Luoding Rural Commercial Bank 900 million yuan. Guangdong Yuecai Investment Holdings Co. Ltd., a financial holding company owned by the government of the southern China province, will take equity stakes in the four rural commercial banks for 10 years.

Some small and midsize banks, especially rural credit cooperatives, have suffered a surge in bad debt over the past few years after a rapid expansion in credit left a large amount of nonperforming loans on their books as economic growth slowed. The Covid-19 pandemic exacerbated the situation as many businesses and individuals were unable to repay debts on schedule.

In response, the State Council, China’s cabinet, in July authorized local government units to use funds from this year’s quota of 3.75 trillion yuan of SPBs to shore up bank balance sheets as part of measures to expand credit to micro, small and medium-sized businesses.

SPBs are a kind of local government debt used to fund infrastructure and other public welfare projects that are commercially viable. The borrowings are generally repaid from income generated by the projects they fund. Unlike general-purpose bonds, they are usually not allowed to be repaid from government fiscal revenue.

The 10-year Guangdong bonds will be repaid using income from recovery of credit assets, income from operation of property trusts and marketized transfer of Guangdong Yuecai’s holdings of equity in the banks. During the bonds’ first five years, only interest needs to be paid. Principal and interest will be repaid over the following five years.

As a strategic partner, Guangdong Rural Credit Cooperatives will organize its member banks to acquire Guangdong Yuecai’s holdings of the banks’ equity.

Minutes from the State Council meeting July 1 where use of SPB proceeds was authorized for recapitalizing banks didn’t specify the size of the program, which banks would qualify, or how the money would be allocated. Caixin reported exclusively in June that around 200 billion yuan of the SPB quota was earmarked for the initiative.

The Ministry of Finance said last month that all of the 200 billion yuan quota was apportioned to provinces. Zhejiang province plans to issue 5 billion yuan and Shan’xi 4 billion yuan of 10-year SPBs to replenish banks’ capital.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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