State-owned companies must get bondholder approval to restructure

State-owned Chinese companies looking to restructure their assets must first gain approval from their bondholders, according to a new order issued by the country’s National Development and Reform Commission, the Wall Street Journal reported. Companies previously needed only the approval of shareholders and regulators; it was therefore possible for a firm to break off profitable parts of its business without regard to the interests of bondholders. The move seems designed to assuage concerns over possible defaults by investment vehicles commissioned by local governments to raise capital for infrastructure projects. China’s national audit office recently released a report estimating local government debt at about US$1.7 trillion, or 27% of GDP. Moody’s Investor Service (part of Moody’s, MCO.NYSE), a ratings agency, argued that the figure underestimated loans to local authorities, pushing the scale of the debt higher.