Quasi-local Government Bond Credit Enhancement And Countermeasures

This article first describes China’s prospective development of local government bonds. The quasi-local government bond trading transactions in the inter-bank markets are more active, indicating that the quasi-local government bonds, bonds with Chinese characteristics, the species in line with China’s national conditions. With the quasi-local government bonds in China is booming, more and more the way of credit enhancement is applied to the quasi-local government bonds issued. This article summarizes the quasi-local government bonds mainly take the mortgage guaranteed by the pledge, the credit enhancement of third-party guarantees two ways; Another part of the bond to take the establishment of a government sinking fund credit enhancement way, but the ways in general andmortgage collateral security or third party guarantees used in combination. Quasi-local government bonds, mortgage collateral security collateral security and land mortgage-backed receivables including local government, the former is essentially a form of local government implicit guarantee, which is free of charge for the government allocated land use rights to the City investment company, city to vote bonds secured by mortgage of land use rights. However, the text released by the China National Development and Reform Commission in2010on the19th presumption, BT receivables pledge, local financing platform secured a mortgage on land, the Government has a special sinking fund and government commitment will not be used to A quasi-local government bonds, credit enhancement. This will make a lot of city investment company can not find a suitable way of credit enhancement is difficult to issue bonds, or cause the issue of high interest rates and other issuesThis article and from the four aspects to analyze and improve the significance of China’s quasi-local government bond credit enhancement system. First, through empirical analysis and verification, the quasi-local government bonds during the guarantee, the probability of default dropped. Bond credit rating higher or still equal to the issuer credit rating, thus the risk of market price fluctuations have been reduced. Bonds secured by the consequences of bond credit rating, the lower their risk of market fluctuations, the stability of the bond prices improved. Secondly, the establishment and improvement of the system of credit enhancement for the development of China’s quasi-local government bonds has played a significant role in promoting, is to reduce credit risk, and improve an effective way to bond credit rating. Again, using the formula derivation to explain the relationship between credit rating and interest rates and bond credit enhancement can reduce the financing costs of the issuer, which indicates that the bonds after credit enhancement, to a certain degree of protection for investors to enhance and thus investors the required rate of return will be reduced, the performance of lower financing costs for issuers. Finally, to illustrate the relationship between bond spreads and credit enhancement as well as statistical analysis of the quasi-local government bond market of non-bank third-party guarantee or collateral pledged quasi-local government debt spreads, higher than the special debt service funds or quasi-government financial support for local government debt spreads. In order to eliminate this difference, it is necessary to improve the quasi-local government bond credit enhancement system.How to improve China’s quasi-local government credit enhancement system recommendations:First, from the experience of recent years, the quasi-local government bond issues for local construction to raise large sums of money become a kind of local government to ease the contradiction between supply and demand of funds effective way to promote local economic development. Due to the implicit guarantee of government, quasi-local government bonds in issue approval and traded often take precedence over other corporate bonds, the main issue is becoming more diverse. At the same time, however, yet to establish a sound credit enhancement system, leading to the high cost of issuance, is not conducive to the advancement of local construction. The situation, China should vigorously promote the bond insurance system;, in accordance with the current administrative system and government fiscal expenditure things the division of responsibilities system, the quasi-local government bond principal and interest payment guarantee can be divided into four levels:first level investment projects operating income of the second level, is owned by the Government of the local government’s ability to tax, the third level of local government resources or assets owned by the (untapped resources, state-owned assets, etc.), the fourth level higher level of local government have mandatory tax security and resources; reference to the mode of operation of the bond sinking fund, China’s quasi-local government bonds sinking fund system should be further improved. Depending on the issuer credit rating, should be allowed to have the distinction of different issuers in the establishment of a sinking fund should also be issued by credit rating agencies rating the issuer of different credit rating provisions of the sinking fund extraction ratio, and with the changes in corporate bonds registered at any time to make adjustments. Fourth, the city investment company in fact bear some of the public functions of government departments, the corporate issuer is a product of local government power and financial power imbalance, the behavior of its financing in the capital markets in a sense to said the nature of certain government actions, the final debt service funds also largely from business dealings with the government or direct government financial subsidies, therefore, that its issuance of bonds with the nature of the implicit government guarantee, when the bonds appear By default, the government principal and interest payment obligations on the moral. However, due to the city investment company independent accounting of the enterprise legal person, even if the event of default, investors would be difficult asking the Government for the subrogation, therefore this implicit guarantee is difficult to get recognized by investors and rating agencies.