Tianjin government-backed property firm may default as China’s deleveraging campaign reaches state-owned sector

Tianjin Real Estate Group, a developer backed by the Tianjin government, could default on a 550 million yuan (US$86.7 million) trust product, in a sign that Beijing’s deleveraging campaign is affecting state-owned enterprises as well.

Tianjin Real Estate, which is controlled by the local state asset supervision and administration commission, was due to pay back part of a trust product for principal and interest worth more than 200 million yuan on May 18. But the company did not submit a plan for repayment by May 10, which prompted the trust product manager, China Citic Trust, to issue a notice on Friday warning investors about default risks.

Investors sold corporate bonds under Tianjin Real Estate afterwards, sending bond yields up to 34.8 per cent on Friday afternoon. China Citic Trust, however, posted another announcement in a few hours, saying Tianjin Real Estate had made assurances about the repayment but did not elaborate.

The trust product has raised more than 550 million yuan. Tianjin Real Estate is indebted to dozens of financial institutions, with an outstanding loan of more than 108.2 billion yuan, China Business News reported on Sunday.

“China has already allowed some state-owned enterprises to default in the past few years, as the central government seeks to establish market discipline and break ‘implicit guarantees’ that distort prices,” said Iris Pang, Greater China economist at ING in Hong Kong.

“But the Tianjin government still has motivation to step in and help with the funding of the firm, if its default downgrades the credit profile of the municipal government,” she added.