Qinghai Provincial Investment Group missed payments on bonds sold both within and outside China recently, marking the first offshore default by a state-owned enterprise (SOE) in over 20 years, reports the Financial Times.
The situation has emphasized the difficulty in assessing the likelihood of government support in China.
Many SOEs have stretched balance sheets, but their ultimate creditworthiness depends on the degree to which their local government or central government parents are willing and able to provide support. Qinghai Provincial made the RMB 21.4 million ($3.2 million) principal and interest payment on the onshore bond just hours after the official deadline on Monday, according to a company statement.
“Over the past few credit cycles, investors’ view was that local investment vehicles were the government’s dear children, and the government will definitely rescue,” said Shi Min, chief credit officer at Lakefront Asset Management, a Beijing-based hedge fund. “But currently, the economies of the north-east and western provinces are weakening, and fiscal revenue doesn’t cover expenditures, so we’re seeing . . . incidents from non-standard financing by these vehicles.”