Chinese firm sells $250m bond to support LGFV

China’s Guizhou Hongyingda Construction Project Management Co. issued a 1.8 billion yuan ($250 million) five-year non-public bond to help repay debt from a local government financing vehicle (LGFV), as reported by Bloomberg on Monday.

The bond, fully guaranteed by Guizhou State Owned Asset Operation Co., was rated AAA by domestic ratings agency CSCI Pengyuan Credit Rating Co. The proceeds will be used to repay or refund two bonds sold by Anshun Xixiu Qiancheng Investment Development Co., an LGFV in the same district.

This move signifies a new avenue for LGFVs to repay debt, particularly bonds sold in the open market, according to Wang Chen, co-founder of Belt&Road Origin (Beijing) Tech Co.

On Friday, the spreads between lower-quality LGFV bonds and comparable government notes narrowed, indicating that investors are gaining confidence in the sector’s ability to repay debt.

LGFV bonds with AA- ratings saw their spreads shrink by five basis points to 288 basis points, marking the tightest level since 2018, as per data compiled by Bloomberg.

(1 United States dollar = 7.20 Chinese yuan)