Beijing’s state-owned infrastructure companies face a record amount of bonds maturing next year as China’s capital city pays the bills for the $70 billion 2008 Olympic Games.
Fifteen local government financing units based in Beijing must pay 16.2 billion yuan ($2.5 billion) next year plus interest to investors, breaking last year’s record 12 billion yuan, according to data compiled by Bloomberg. A further 11.6 billion yuan matures in 2013 and 37.6 billion yuan in 2014.
The debt is coming due as government efforts to control inflation cause corporate borrowing costs in China to rise to a three-year high of 5.92 percent this month, double the rate in the U.S. How Beijing deals with the bill, which dwarfs the estimated $15.3 billion budget for next year’s London Games, may set a pattern for more than 10,000 local-government financing vehicles across China with about 10 trillion yuan of debt.
“The Olympics was a spectacular event for China, but now Beijing has to deal with the hangover because of high borrowing to finance the event,” said Victor Shih, a professor at Northwestern University in Evanston, Illinois who analyzes China’s local government finances. “Bond yields are heading up, so refinancing will be much more costly.”
The yield top-rated companies must pay on 10-year bonds has risen 74 basis points, or 0.74 percentage point, this year to 5.88 percent and touched 5.92 percent on Aug. 4, according to Chinabond data. Borrowing costs for similarly ranked U.S. companies have dropped 105 basis points to 2.9 percent in the same period, Bloomberg data show.
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