Local Financing Platform For Corporate Bond Credit Spreads Influencing Factors

In China, local governments have no right to issue government bonds to raise funds for infrastructure construction and other public welfare projects, so the local governments built some financing platforms (Urban Construction Investment Company, "UCIC") for financing. The corporate bond issued by such financing platform is called UCIC bond, which is studied in this paper. Since 2008, the UCIC bonds grew rapidly. With the rapid expanding of the UCIC bonds scale, the credit risk of UCIC bond attracts more and more attention.Under this background, this paper empirically tests the factors affecting the credit risk of UCIC bond, and this has certain theoretical and practical significance. The empirical tests can determine the factors and the influence of the main factors on the credit risk, which has some reference value for the credit rating, pricing and investment of UCIC bonds.The UCIC bond has the characteristics of general corporate bonds, municipal bonds, and high-yield bonds, and it also has default risk. The factors influencing the credit risk of corporate bonds, municipal bonds, and high-yield bonds include macro factors, regional factors, bond factors, financial factors and other factors. The empirical test of the UCIC bond also focuses on these five factors.The empirical tests find that, about the macro factors, the GDP growth and CPI growth significantly influence the credit spreads of UCIC bond. GDP growth has significant negative correlation with the credit spreads, and the CPI growth has significant positive correlation with the credit spreads. That is, the higher the price index, the higher the market requires about the return rate.About the regional factors, the credit spreads of UCIC bond significantly influenced by local revenue. The local revenue and the credit spreads have significant negative correlation, which means that the local revenue can reduce the default risk of UCIC bond.About the bond factors, none of the bond maturity indicator or the size indicator gets through the empirical test. This is due to the special characteristics of UCIC bond in China and the special provisions of the National Development and Reform Commission. About the financial factors, the non-operating revenue influenced the credit spreads of the UCIC bond negatively. The non-operating revenue is mainly financial subsidies. UCIC with more financial subsidies can reduce the bond default risk and reduce the credit spreads.About other factors, the guarantee indicator has negative correlation with the credit spreads, because the guarantee can reduce the default risk. The underwriter indicator has negative effect on the credit spreads. The redemption term increases the reinvestment risk to the investors, so UCIC bond with redemption term has higher credit spreads. The resale term and the credit spreads have negative correlation because the resale term reduces the investment risk of the investors.