Wednesday, January 18, 2012

Chinese toll roads default on their loans

It's not just the Railways Ministry who was concerned about debt evidently

China Daily is reporting that a bunch of state toll authorities in China are defaulting on bonds by announcing an "extension" of their loans. And the country's regulator says it's OK. As an example Hunan Provincial Expressway has suspended payments of interest on Y3.11b, $491m in a unilaterally declared "loan extension." Next biggest toll operator Guangdong Provincial Communications and two others among total of eleven expressway companies are "delaying payment" of interest on some Y30.16b, nearly $5b of debt.

The debt was incurred in connection with highway projects advanced as economic "stimulus" in 2009, and apparently they have not attracted the expected traffic and toll revenues, and find themselves unable to service their borrowings

A senior official of the China Bank Regulatory Commission Zu Mubing is quoted as saying recently that local government entities like tollroads can have a one-time extension of their loans, apparently saying that a delay in making interest payments is acceptable to the country's major regulatory body.

In the absence of an independent judiciary to which creditors can appeal, the regulators' word is law.

Many of the state companies with loan "extensions" are apparently in the loan markets for more borrowing because the "extensions" are cited in prospectuses issued for new loans. Lei Wanming, a Party official at provincial tollroad Gansu Highway is quoted as saying that his company's interest payment deferrals should not cause concern: "Our company can pay our interest and our principal payments with no problem."

Quite why they would breach their contract with lenders and cease paying interest if they are able to pay it with "no problem" probably requires the special logic possessed of a communist party apparatchik to explain.

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