China Province’s LGFV Debt Fix Poses ‘Systemic Risk,’ S&P Says

An unusual bond issue by a local government financing vehicle in China’s Guizhou province to pay for another regional LGFV peer’s debt is a “step backward” for the country’s municipal financing reform and may introduce systemic risk, S&P Global Ratings says.

The move could be “one that exacerbates moral hazard by adding yet another safety net when troubles arise for incautious borrowers,” the ratings firm’s analysts, including Laura Li, wrote in a Wednesday report. “If the policy is used by entities to expand borrowing, it could increase the total debt of China LGFVs.”

Guizhou Hongyingda Construction Project Management Co., ...