A state-owned infrastructure company in the northern Chinese city of Hohhot has failed to repay interest on a RMB 1 billion ($142.1 million) bond, marking another potential default by a Chinese local government financing vehicle (LGFV), reported Caixin.
The bond issuer, Hohhot Economic and Technological Development Zone Investment Development Group, failed to repay interest on a private placement note on Friday, according to a document obtained by Caixin released by the Shanghai Clearing House to bond investors on the same day. The company is wholly owned by the financial and audit bureau of a special economic zone government in Hohhot, the capital city of the Inner Mongolia autonomous region. Private placement notes are a type of debt financing instrument issued by nonfinancial firms to a limited group of investors in the interbank bond market.
The failed payment comes as a surprise to many market participants who invested in bonds issued by LGFVs, as they were seen as a safe option with repayments implicitly guaranteed by local governments.
If the Hohhot LGFV fails to make the interest payment within a grace period of 10 days, it will cause a default, according to the 2016 bond issuance prospectus seen by Caixin.