(Yicai Global) May 26 -- The default risk of bonds designed to support urban construction projects in Kunming, the capital city of China's Yunnan province, is low despite rumors, according to financial experts.

The Kunming government timely refuted the default risk rumor, Hu Hengsong, deputy general manager of Caida Securities, told Yicai Global. These notes were issued by government backed city investment companies, even though they are not technically municipal bonds but the projects the fund was spent on are closely aligned with government planning.

The southwestern city's local government issued a statement earlier this week to deny an online rumor that claimed urban investment companies have trouble paying off their maturing debts.

Kunming has 15 city investment companies with outstanding debt, according to public information. This year is the debt maturity peak period of about CNY27.3 billion (USD3.9 billion) for them. The biggest burden is on Anju Group which has about CNY5.3 billion (USD750 million) of expiring bonds in 2023.

The ripple effects would be too big. If there was a large-scale repayment failure on such bonds, it would greatly impact the banking industry and the entire credit system, and therefore investors would no longer dare to buy credit bonds without collateral, Hu said.

The related risk in Kunming is controllable, another expert told Yicai Global. However, some urban investment firms have been suffering from liquidity problems, which may have given rise to the rumors, the person added.

The expert gave an example. A court ordered Kunming Land Development Investment Operation, a firm that has been on the court's enforcement list several times since last year, to pay CNY330 million (USD46.7 million) of the overdue principal and interest of a financial lease contract, the source said, citing a report from China Chengxin International Credit Rating.

In fact, the southwestern city is improving its financials. Kunming's general public budget revenue should reach CNY54.1 billion this year, up 7 percent from 2022, per the official report. Revenue of government-managed funds should almost triple to CNY37.1 billion due to rising land sales and the gradual rebound of the real estate market.

Currently, the balance of muni bonds in China is more than CNY13 trillion (USD1.8 trillion) with a track record of no substantial defaults.

Editors: Tang Shihua, Emmi Laine, Xiao Yi