July 29, 2016 / 10:31 AM / a year ago

Creditors urge China's Hebei to act on debt crisis

BEIJING, July 29 (Reuters) - More than ten financial institutions in China pressed the provincial government in Hebei this month to act swiftly to resolve a multi-billion dollar debt crisis that blew up early last year after a state-owned credit guarantee company became technically insolvent.

Once China’s second-biggest credit guarantor, Hebei Financing Investment Guarantee Group backed lending to more than 1,000 corporate borrowers in the province, which has been hit hard by the economy’s slowdown.

Set up to improve funding for the province’s small and medium-sized businesses, Hebei Financing became technically insolvent early last year, and is unable to help pay out at least 32 billion yuan ($4.8 billion) of total loans extended with its backing.

Lenders, which consist of scores of banks, trust companies, asset management firms and fund managers, face huge losses as Hebei Financing failed make good its guarantees and they have appealed to the provincial government to bail out Hebei Financing.

In a “urgent letter” to the province’s top bosses dated July 12, the financial institutions bemoaned the lack of action, warning that the crisis continues to worsen.

“(We) haven’t seen any actions being taken to resolve Hebei Financing’s crisis”, financial institutions said in the letter, seen by Reuters, that was sent to the province’s Communist Party secretary and governor.

Creditors urged the provincial government to ask the custodian company, state-owned Hebei Construction & Investment Group Co, to a provide credit guarantee to allow the restructuring of Hebei Financing-related debt.

“If Hebei Construction can provide credit enhancement for debt restructuring, we can delay debt payment for a year or two to allow the Hebei government time to solve the crisis through company restructuring,” the letter said.

Last year, 11 trust companies, that had sold a large amount of Hebei Financing-backed wealth management products to more than 1,000 retail investors, petitioned the province to act before the crisis triggered a public panic.

When contacted by Reuters, the provincial government’s press department declined to comment on the letter. Attempts to contact Hebei Financing were unsuccessful. ($1 = 6.6489 Chinese yuan renminbi) (Reporting By Shu Zhang and Elias Glenn; Editing by Simon Cameron-Moore)

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