The firm had aimed to sell a 364-day yuan-denominated offshore bond on Friday as a way to refinance the maturing notes, but investors balked at the offered pricing and the sale was halted, according to people familiar with the situation, who requested anonymity because the discussions are confidential.
As a local government financing vehicle, the company says it has enough cash on hand to repay two offshore yuan notes - one carrying a 6.9% coupon and the other a 7.9% coupon - when they mature Aug. 11. The company was responding to queries from Bloomberg News. No additional information was offered, and it would not say whether another offshore sale might be attempted in the coming days.
What happened with this company illustrates how financially strained LGFVs in China, even with government backing, must work hard to find every available option for meeting their obligations.
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Local government financing vehicles are entities created to help Chinese cities and towns fund public works such as highways and low-income housing. Years of that role have left thousands of them with enormous debt.
The scale of their debt is considerable. The LGFV sector has around 16 trillion yuan in outstanding bonds, with roughly 5 trillion yuan scheduled to become due by the end of 2027. That leaves many issuers dependent on ongoing access to refinancing.
The company's own finances are modest. Profit was 16 million yuan on revenue of 250 million yuan in the latest fiscal year, while its liability-to-asset ratio was 67.33%, per a Shanghai Stock Exchange filing.
That filing also indicated earlier strain: in October, a Chinese court included the company on a list after it failed to satisfy a 322,354 yuan enforcement claim. Separately, a person close to the situation said the firm had 10 million yuan of overdue payments as of late April, asking not to be named because the detail was private.
On Friday, the company's 6.9% note was trading at about 97 cents on the dollar, according to Bloomberg data. The court listing, the overdue payments, and the discounted bond price had already put the company on investors' radar before the pricing dispute.
At one point, LGFVs were regarded as Asia's biggest financial danger. Then Beijing instructed banks and provincial governments to support them in repaying domestic and offshore debt maturing by June 30, 2027, pushing borrowing costs down to historic lows. Even so, a string of regulatory measures has left weaker LGFVs under refinancing stress, according to Bloomberg, and they are being steered away from issuing offshore at elevated yields. Luoyang Shangdu's situation is one example of that strain.
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