(Yicai Global) Sept. 17 -- Kweichow Moutai is to invest in securities, China’s leading liquor maker said, triggering market speculation that it might buy local government bonds to help relieve some of debt-laden Guizhou province’s borrowing pressure.

Subsidiary Kweichow Moutai Group Finance will carry out investments in fixed-income securities, such as bonds, to a maximum 70 percent of the company's capital, the parent firm said on Sept. 15.

The move has been interpreted by many market insiders as an attempt by the Maotai-based distiller to help the heavily indebted local government resolve some of its debt risks. The province has had trouble leveraging financing due to a number of defaults.

Mountainous Guizhou province is one of China’s poorest and more remote provinces. It also has the highest level of debt of all the country’s provinces, with an asset to debt ratio of almost one and a half times last year. By the end of 2019, the Guizhou government owed CNY967.3 billion (USD143 billion), including CNY594.6 billion of general debt and CNY372.8 billion of special debt.

Kweichow Moutai, on the other hand, is China’s most valuable brand, according to a 2019 ranking by the Hurun Research Institute. It holds a monopoly on the famed baijiu liquor Moutai market and has a market value of CNY2.7 trillion (USD398.7 billion), almost double the province’s 2019 gross domestic product of CNY1.67 trillion.

The amount to be invested in local government bonds is not large, around CNY3.5 billion (USD518 million) according to the firm’s statement, and will not have an immediate impact on the province’s difficulty in selling its bonds, a person familiar with the matter told Yicai Global.

Even if Kweichow Moutai’s purchase quota is not large, it can still play a role in enhancing the credibility of these securities, another industry insider said.

Kweichow Moutai is listed on the Shanghai Stock Exchange and must abide by the bourse’s information disclosure regulations. If the bond assets it invests in default, the firm will face pressure from the public, the person added.

This is not the first move by the company to help the province where it is based. Last December its parent firm Kweichow Moutai Group transferred 4 percent shares in the distiller to Guizhou State-Owned Capital Operation to help alleviate the hidden debt risk of the province.

Yesterday the Kweichow Moutai Group also announced that it will issue CNY15 billion (USD2.2 billion) in corporate bonds to buy equity in loss-making Guizhou Expressway Group, the leading highway operator in the province, which has been badly affected by the travel restrictions imposed during the Covid-19 pandemic.

The average coupon rate of newly issued urban investment bonds issued by governments of all levels in Guizhou province was 7.19 percent in the year ended Jan. 13, far higher than the national average of 4.82 percent, according to Shanghai-based financial data provider Wind Information. The province had issued 343 credit bonds worth CNY175.6 billion as of Sept. 15, mostly to urban investment companies, Wind added.

Editors: Tang Shihua, Kim Taylor