The Study On Issued Credit Spread Of Chinese Quasi-Municipal Bond

Nowadays, China’s economy is growing steadily with the average GDP of more than 7%. The traditional way of financing such as taxation, transfer payments and land selling can’t afford the funding of city construction. Local government financing company has established in order to solve the financing problem. The bond issued by financing companies can be considered as quasi-municipal bond, while the local government is responsible for the bonds.Recent year, the debt of local government is booming, and the financing ways are diversified. Through bank loaning, bond issuing, trust issuing, and build-transfer programming, local government is leveraging invisibly. The demand of financing also pushes up the financing cost and credit risk is accumulating.The 2011 local government debt incident attracted academics and industries to attach importance to credit risk of quasi-municipal bond. Afterwards, some quasi-municipal bonds suffered from downgrades and further became the high-yield bond. In this context, study on credit risk of quasi-municipal bond is valuable.The paper studies the factors affecting credit spread when issued of quasi-municipal bonds of different ratings. Based on multi-linear regression models, we choose the 7y-quasi-municipal bonds issued between 2011 and 2013 of AA+ and AA as samples, select the government financial factors and the company financial factors as independent variables and study the similarities and differences of factors affecting credit spread of quasi-municipal bonds of different ratings. In Chinese academic market, this paper is on the first attempt to study the factors for different ratings. Besides, we are close to the real market when over viewing the quasi-municipal bond market.Overall, the government financial factors are more significant than company financial factors especially the administrative level. Furthermore, the government financial factors are relatively more significant than the company financial factors for high-grade bonds, while the company financial factors are relatively more significant than the government financial factors. The government financial factors such as administrative level and local revenue are significant, while the company financial factors such as ROE, net profit margin and cash flow ratio are significant.Specifically, the administrative level is the most negatively significant factor for both AA+ and AA rating bonds, and ROE is also negatively significant for both AA+ and AA rating bonds. For AA+ bonds, local revenue is negatively significant while other company financial factors are not. For AA bonds, net profit margin and cash flow ratio are significant while other government financial factors are not. That’s the difference.Nowadays quasi-municipal bonds issuing are facing the time of expansion and downgrading. Last but not least, we try to find some ways of credit risk controlling from the aspects of companies, rating intermediaries and local government.