China's cash-strapped LGFVs ramp up offshore bond issuance


Offshore LGFV bonds amounted to around $76 billion in January, a fraction of the $9 trillion total LGFV debt.

Issuance of LGFV bonds offshore hit $2.2 billion in January, the highest monthly volume since Nov. 2022, according to data provider Dealing Matrix.

Roughly 40% of the 28 offshore LGFV bonds issued in January yielded more than 7%. That compares with average yield of 3% on their onshore debt.


The LGFV rush to raise money offshore complicates Beijing's aim of reducing leverage and adds to the interest rate burden of already cash-strapped LGFVs.

Regulators may further tighten offshore bond issuance, analysts at Huatai Securities said in a market research note.


LGFVs have been tapping offshore markets for years, and through the pandemic even as mainland funding rates dropped.

"Even if the cost is low, they may not be able to get enough financing and still need additional sources of funds," said Sherry Zhao, senior director, Asia-Pacific international public finance ratings at Fitch.

"The use of proceeds are more flexible for offshore LGFV bonds and we estimate that this year's offshore issuance volume should be better than last year," Zhao said.


Onshore investors and brokers are keen to invest in these offshore LGFV bonds as they seek alternatives to a struggling stock market and low-yielding bonds at home.

A banker at a major brokerage in Shanghai says he is scouring the market for spare limits under outbound investment channels for onshore investors, such as the Qualified Domestic Institutional Investor (QDII) and Qualified Domestic Limited Partnership (QDLP).

(Reporting by Shanghai Newsroom Editing by Vidya Ranganathan and Neil Fullick)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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