Chinese regional and local governments have less scope and autonomy to support State-owned enterprises (SOEs) facing financial distress than before, Moody's Investors Service said on Wednesday.
Seven credit-distress episodes have involved SOEs owned by regional and local governments since October 2015, which are all in overcapacity sectors. But only one, Northeast China's Heilongjiang Province, offered direct fiscal support, noted a report Moody's sent to the Global Times on Wednesday.
For example, Heilongjiang Longmay Mining Holding Group Co, which has been financially struggling in recent years, has been backed by the local government with $298.5 million as support, as the local authorities are concerned about the livelihoods of the company's 200,000 employees, according to Moody's.
However, the other six local governments merged their troubled SOEs with strong peers or let them go bankrupt, including Guangxi Non-Ferrous Metals Group Co in South China's Guangxi Zhuang Autonomous Region and Dongbei Special Steel Group Co in Northeast China's Liaoning Province, said Moody's.
And a common alternative to direct funding is to arrange for stronger SOEs to provide their weaker peers with loans or assets, or in some cases to merge with them.
Also, some local governments have also asked banks to share the burden of assisting distressed SOEs by extending their loan maturities, or swapping their loans into bonds or equity, according to Moody's report.
