China's Liaoning to issue $12 bln of bonds to repay debts

SHANGHAI, Oct 9 (Reuters) - China's northeastern Liaoning province said on Monday it would issue 87 billion yuan ($11.93 billion) worth of refinancing bonds this week to repay outstanding liabilities, as Beijing steps up efforts to reduce debt risks in a wobbly economy.

The announcement comes on the heels of similar bond sales plans by the local governments of Tianjin and Inner Mongolia, and could further beef up investor confidence in bonds issued by local government financing vehicles (LGFVs).

LGFVs were set up by Chinese local governments to fund infrastructure investment, and their combined debt has ballooned to roughly $9 trillion, posing a major risk to China's slowing economy.

Liaoning will auction four batches of refinancing bonds on Thursday totalling 87 billion yuan, with maturities ranging from seven to 30 years, according to the sales prospectus. The proceeds will be used to repay existing debt.

Late last month, Inner Mongolia became the first province this year to announce the issuance of refinancing bonds, marking what some see as the start of Beijing's promised efforts to tackle local debt issues.

"We expect a large volume of local government refinancing bonds to be issued in the fourth quarter," Everbright Securities wrote.

TF Securities expects issuance of refinancing bonds by local governments to hit 1 trillion yuan ($137.07 billion) this year, which would ease fiscal stress and benefit LGFV bonds.

LGFV bonds have already seen a surge in investor interest since July, when China's central government pledged to offer a "comprehensive package" of measures to address local government debt issues.

LGFV credit spreads have been shrinking and average bid-to-cover ratio for LGFV bond issues have jumped, reflecting rising enthusiasm in both the primary and secondary markets.

But some analysts caution against risks ahead.

LGFV investors are "dancing on a knife's edge," Rhodium Group analysts Allen Feng and Logan Wright wrote.

Planned refinancing bonds - estimated to be worth 1.5 trillion - is "a drop of water in the ocean" compared with China's total local government borrowing of around 100 trillion yuan, they wrote.

"Localities still cannot repay their debts by themselves, and any restructuring has a cost that will likely fall significantly upon creditors. ($1 = 7.2953 Chinese yuan renminbi) (Reporting by Samuel Shen and Tom Westbrook; Editing by Simon Cameron-Moore)