Date
15 December 2017
A man looks at a trading board in Jiangsu province which has completed the sale of the first municipal bonds under a new local government debt restructuring program. Photo: WSJ
A man looks at a trading board in Jiangsu province which has completed the sale of the first municipal bonds under a new local government debt restructuring program. Photo: WSJ

Jiangsu sells first bonds under new debt swap program

Jiangsu province has successfully sold bonds directly to the market, a major step in China’s efforts to restructure 1 trillion yuan (US$161 billion) of local government debt.

The eastern Chinese province sold all 52.2 billion yuan of bonds it offered, the Wall Street Journal reported Tuesday.

The auction comes after the central government this year launched a program that allows local governments to issue new bonds to replace a portion of older, costlier debt maturing in 2015.

Jiangsu’s sale, the first by any province under the debt-replacement program, was an “affirmation of our debt by the market”, the local government said in a statement.

China’s local governments had some 17.9 trillion yuan in debt as of mid-2013.

Much of the debt came in a huge stimulus push in the wake of the 2008 global financial crisis.

The debt load is a drag on an economy that may already have trouble meeting Beijing’s goal of reaching about 7 percent annual growth this year, economists said.

China has been looking to let local governments sell fresh debt at lower interest rates and for longer maturities than their existing borrowings.

That would reduce the financial burden of these provinces and give them breathing room to make repayments.

The central government hopes its efforts will also help cushion potential bad-debt problems in the nation’s banking system.

Before the sale, the Jiangsu provincial government, anticipating the likely yields on the bonds, said the sale would “cut our interest burden in half”.

The province had initially planned to sell the bonds in April but it delayed the offer with no explanation.

Bond traders said the market was initially reluctant to buy the debt at the terms originally offered.

Last week, Beijing unveiled a plan that would allow banks  – the main buyers of the bonds — to use the local-government debt as collateral for new borrowings from the central bank.

The central government also said interest on the debt had to be at least in line with interest on sovereign bonds.

Jiangsu sold three and five-year bonds carrying interest of 2.94 percent and 3.12 percent, respectively, while seven and 10-year bonds each carried interest of 3.41 percent.

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