(Yicai) Feb. 27 -- A trust product set up for a state-backed city investment firm in southwestern Guizhou province, which has defaulted on repayments, will return between 93 percent and 94 percent of the principal to investors in the latest example of struggling local governments finding ways to manage their huge debt burdens.

Trust plan “Liquidity Support No. 19,” which was issued by Wanxiang Trust in more than 20 installments from November 2019 to February 2022, will hand back investors’ principal with a deduction of between 6 percent and 7 percent, Yicai recently learned.

An investor who placed CNY1 million (USD137,500) in the trust in early 2022 told Yicai that he has been notified by the trust company that he will recover about CNY930,000 (USD127,875) of his investment.

When Yicai called Wanxiang Trust as an investor, staff confirmed the payout and said that the redemption funds mainly come from the local government’s debt relief program. This payout plan is one of the best options available for investors, they added.

The payout plan was the result of prolonged negotiations by the trust company with the government, according to a financial advisor from the trust company. If investors do not accept it, there are not likely to be other repayment options, he added.

“Liquidity Support No. 19” raised a total of CNY320 million (USD44 million) between late 2019 to early 2022, all of which was used to supplement the working capital of Guizhou Southwest Transportation Investment Industrial Group, which is a unit of Guizhou province’s Dushan county government and is responsible for local transportation and infrastructure project development. The product began to mature in November 2021, but repayments were delayed several times. After several extensions, a notice was recently issued to investors saying that they can redeem the principal with a small deduction.

Guizhou Southwest Transportation is currently a defendant in 151 economic dispute cases involving more than CNY2.6 billion (USD358 million), according to Tianyancha data. Since 2022, the company has been listed as a ‘defaulter’ in 18 separate legal records.

China’s cabinet proposed a debt-relief package for local governments in November last year. Since then, local governments have issued new bonds to replace implicit debts borne by their urban investment companies, which has helped alleviate some of the debt pressure. This has also provided the funds for trust products such as Liquidity Support 19.

However, according to the 2025 budget reports released by some cities, prefectures and counties in Guizhou province, parts of the province are still under considerable pressure to repay debt and the task of resolving debt remains arduous.

Editors: Tang Shihua, Kim Taylor