Tianjin Government Company Defaults on USD$79mn in Trust Loans


A state-owned real estate company in Tianjin municipality has defaulted on two trust loans with a total value of 500 million yuan (USD$78.69 million), as Beijing steps up pressure on the debt levels of China’s local governments.

Tianjin Municipal Development Co. has failed to make payments for funds borrowed via two trust products issued by Guotong Trust, according to an official statement posted by Guotong over the weekend.

The company is a Tianjin-based real-estate developer that also engages in land consolidation and hotel services operations.

Shareholder Tianjin Municipal Construction Group is owned by the Tianjin Municipal People’s Government via the local branch of the State-owned Assets Supervision and Administration Commission.

While the loans were scheduled for payment prior to April 14, Guotong’s official statement indicates that Tianjin Municipal Development required an extension, with all loans now scheduled for repayment prior to June 29 2018.

A report from rating agency Pengyuan Credit Service indicates that Tianjin Municipal Construction Group had a debt ratio of 91.17% as of the end of 2016, putting it under heavy repayment pressure.

The default marks the second such failure to make loan payments by a local government entity since the start of 2018, after Yunnan-based Capital Operation Co. failed to make payments worth more than 900 million yuan for financial products issued by Zhongrong International Trust on the other side of China in north-eastern Heilongjiang province.

The Yunnan-province case triggered concerns about a potential wave of defaults on loans made to Chinese local governments.

Local government debt is one of the key focal areas for China’s ongoing deleveraging campaign, with the central government flagging heavy pressure on “covert growth” in local debt, and a focus on the issuance of municipal bonds.

Beijing has also adopted measures to prevent insurers as well as state-owned enterprises from providing certain forms of financing to local government entities.