SHANGHAI - A Chinese government financing unit in the southwestern Guizhou province said it will extend the maturity of bank loans worth 15.6 billion yuan ($2.3 billion) by 20 years.

China's local governments, especially those in less-developed regions such as Guizhou, are struggling to meet debt obligations in an economy hit by COVID and a property downturn.

The debt extension comes after China's cabinet said last January it will allow local government financing vehicles (LGFVs) in Guizhou to delay debt payments and undergo debt restructuring.

LGFVs are typically investment companies that raise money and build infrastructure projects on behalf of local governments.

Zunyi road and bridge construction (group) limited said in a Friday statement it had agreed with financial institutions on a debt restructuring plan.

The plan allows interest rates of the $2.3 billion loans to be adjusted to between 3% and 4.5% per year, and the company will only pay interest without principal during the first ten years of the extension.

"The debt restructuring can help the company alleviate short-term debt repayment pressure and optimise debt structure," it said. ($1 = 6.8845 Chinese yuan renminbi)

(Reporting by Shanghai Newsroom, Editing by Louise Heavens)