ICBC Says Cash Flows Cover 90.4% of Local Government Loans

Industrial & Commercial Bank of China Ltd., the largest lender by market value, said 90.4 percent of its loans to local-government financing vehicles are fully covered by cash flows from the projects.

Another 6.6 percent of loans to the entities are at least 70 percent covered, Yang Kaisheng, president of the Beijing- based lender, said at a press conference in the Chinese capital today. At the end of last year 0.74 percent of such loans were non-performing, compared to 0.94 percent for the bank’s entire loan portfolio, Yang said.

China has tightened controls on lending to local government financing vehicles on concern some will be unable to repay debt as the economy slows, saddling banks with bad loans. The bodies, set up to raise funding for municipalities that can’t borrow directly from banks, had accumulated 10.7 trillion yuan ($1.7 trillion) of debt at the end of 2010, with 70 percent due for repayment by 2015, according to the National Audit Office.

China’s government will appropriately handle the issue of debt repayment by local governments and continue to take measures to control the level of borrowing, Finance Minister Xie Xuren said at a separate briefing in Beijing today.

Goldman Sachs Group Inc. (GS), which owns about 8.5 billion shares in ICBC, according to Bloomberg data, is free to sell the stake because the lockup has ended, Yang said today.

Goldman Sachs has held informal discussions with institutional investors including BlackRock Inc. (BLK) about selling part of its stake to raise more than $1 billion, the South China Morning Post reported today, citing unidentified people familiar with the matter. Feedback hasn’t been positive, the newspaper said. David Wells, a spokesman for the U.S. firm, declined to comment on the report.

To contact Bloomberg News staff for this story: Bloomberg News in Beijing at dzhang14@bloomberg.net; Jun Luo in Shanghai at jluo6@bloomberg.net

To contact the editor responsible for this story: Nathaniel Espino at nespino@bloomberg.net