In Depth: Huafa’s Debt Crisis Tests the Limits of Local Government Support
Caixin Global · Wang Juanjuan; Chen Bo Published Nov 6 ·
Zhuhai’s support has steadied bonds, but property losses, unpaid government bills and heavy debt leave its largest city-owned conglomerate dependent on creditor negotiations
1. Zhuhai has mobilized more than 40 billion yuan ($6 billion) to support Zhuhai Huafa Group, its largest city-owned company, after a debt scare rattled China's bond market. The intervention has left unresolved the question of how a fiscally strained local government can stabilize a sprawling conglomerate carrying 404.7 billion yuan in interest-bearing debt. Huafa's assets exceed 750 billion yuan, and its businesses range from housing and infrastructure to technology and financial services, making its troubles more complicated than those of a conventional property developer. [para. 1][para. 2]
2. Huafa's liquidity problems surfaced publicly on Oct. 26 with reports of overdue payments on nonstandard financing. Its domestic and offshore bonds fell sharply, and by Oct. 30 selling spread beyond Huafa. Credit bonds and government bonds declined together, exchange-traded funds faced concentrated selling, and yields on 10-year and 30-year Chinese government bonds rose significantly. Several longer-dated Huafa corporate bonds fell more than 20% during trading on Nov. 2 and 3, triggering temporary trading halts. [para. 5][para. 6][para. 7][para. 8]
3. On Nov. 4, the 21st Century Business Herald reported that Zhuhai had delivered more than 40 billion yuan in support through resource consolidation, restructuring and market-based transactions, pledging to mobilize nearly 70 billion yuan in additional resources. Zou Hui, director of Zhuhai's state-assets regulator, described Huafa's difficulties as temporary challenges caused by an industry downturn compounded by legacy burdens. Prices subsequently rebounded on four offshore yuan-denominated Huafa bonds and some heavily sold domestic issues. [para. 9][para. 10]
Read the full story at Caixin Global · All coverage of this story