Lo­cal govt debt rules eased

China Daily (Canada) - - FRONT PAGE - By LAN LAN and ZHENG YANGPENG

Curbs on debt is­sues by lo­cal gov­ern­ment fi­nanc­ing ve­hi­cles are be­ing eased to boost fund­ing for in­fra­struc­ture in­vest­ment that will off­set slow­ing eco­nomic growth.

The Na­tional Devel­op­ment and Re­form Com­mis­sion, which reg­u­lates State-owned en­ter­prise bond is­sues, on Wed­nes­day said that it had low­ered the debt-to-as­set ra­tio for LGFVs that need to pro­vide guar­an­tees to 65 per­cent. It cut the ra­tios forAA+ andAAA rated LGFVS to 70 per­cent and 75 per­cent, re­spec­tively.

It did not spec­ify what the pre­vi­ous ra­tios were.

The move is ex­pected to spur a new wave of bond is­sues by LGFVs to meet a huge fi­nanc­ing short­fall in in­fra­struc­ture in­vest­ment.

The reg­u­la­tor also lifted the debt-to-lo­cal GDP ra­tio for cities and coun­ties. En­ter­prise bonds and medium-term notes is­sued by th­ese ju­ris­dic­tions can now be equal to a max­i­mum of 12 per­cent of lo­cal GDP, com­pared with 8 per­cent pre­vi­ously.

Guo Tiany­ong, head of the Re­search Cen­ter of the Chi­nese Bank­ing In­dus­try at the Cen­tral Uni­ver­sity of Fi­nance and Eco­nomics in Bei­jing, said the changes will help lo­cal gov­ern­ments solve the ur­gent prob­lem of get­ting the fi­nanc­ing needed for in­fra­struc­ture in­vest­ment.

“Main­tain­ing sta­ble growth is the most press­ing task. There is still am­ple room to ex­pand in­vest­ment in China’s vast cen­tral and west­ern re­gions, though the changes are also likely to raise de­fault risks fac­ing some lo­cal gov­ern­ments,” said Guo.

LGFVs must re­pay a record 698.73 bil­lion yuan ($114 bil­lion) of notes this year, com­pared with 304.1 bil­lion yuan in 2014, Bloomberg re­ported.

The NDRC listed a num­ber of fa­vored ar­eas for bond is­sues, such as the seven key sec­tors: Oil and gas pipe­lines, health and se­nior-care ser­vices, en­vi­ron­men­tal pro­tec­tion, clean en­ergy, food and wa­ter projects, trans­porta­tion, and sup­port ser­vices for oil, gas and min­ing.

In­fra­struc­ture in­vest­ment has been des­ig­nated as an eco­nomic driver. But many lo­cal gov­ern­ments are fac­ing fi­nan­cial dif­fi­cul­ties due to de­clin­ing land sale rev­enues and tight debt con­trols.

In the first four months, ur­ban fixed-as­set in­vest­ment rose 12 per­cent year-on-year to 12 tril­lion yuan, down 5.3 per­cent­age points from a year ear­lier, ac­cord­ing to the Na­tional Bureau of Statis­tics.

Guan Youqing, an an­a­lyst with Min­sheng Se­cu­ri­ties Co Ltd, said that the growth of in­fra­struc­ture in­vest­ment must reach 25 per­cent this year if the GDP goal of about 7 per­cent is to be achieved.

The NDRC also said it cut the re­quired debt-to-as­set ra­tio for non-LGFV is­suers that must ob­tain debt guar­an­tees to 75 per­cent. It low­ered the ra­tios for sim­i­lar AA+ and AAA rated is­suers to 80 per­cent and 85 per­cent, it said.

The NDRC en­cour­aged LGFVs and non-LGFVs to fi­nance public-pri­vate part­ner­ship projects by bond sales. Con­tact the writ­ers at lan­lan@chi­nadaily.com.cn and zhengyang­peng@ chi­nadaily.com.cn

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