The Impact Study Of Government Financial Support For Credit Spreads Of Quasi-municipal Bonds

The National Audit Office announced the audit report in government debt in December30,2013. At the end of June2013, the local governments bear the debt obligations108,859.17million, bears responsibility for the debt guarantee26,655.77billion. UDIC has become one of the major borrowers. UDIC for the company’s liabilities, include bank loans, bonds and trust. At the end of June2013, bond balance of bonds, medium-term notes and short-term financing bills issued by UDIC were459,009billion,57,544billion and12,353billion. Bonds issued by UDIC have become an important part of local government debt.Bonds issued by UDIC are generally called "quasi-municipal bonds". City investment bonds in accordance with the different conditions and authorities can be divided into corporate bonds, medium-term notes and short-term financing bonds. The main object of this study is corporate bonds, in this study we call it as quasi-municipal bonds. Corporate bonds are issued in accordance with the procedures of an enterprise issue, agreed in debt securities within a certain period, the main issue of unlisted companies, the National Development and Reform Commission approval, bond duration is usually3-10years.Compared with the U.S. municipal bonds, the legal status of quasi-municipal bonds is not clear. U.S. municipal bonds are divided into general obligation bonds and revenue bonds. The Chinese quasi-municipal bonds raise funds for local infrastructure, nominally by the company with its own operating income to repay. The relationship between quasi-municipal bonds issuers and the local government is very close (usually a wholly owned subsidiary of the local government or related agencies), the bond proceeds is mainly used for urban infrastructure (such infrastructure usually does not produce direct economic benefits). Local government has become invisible guarantor for quasi-municipal bonds.An important feature of quasi-municipal bonds is the issuers are closely with the local government. In order to satisfy conditions of quasi-municipal bonds and enhance its financial strength, increased debt solvency margin, quasi-municipal bonds issuers seat of local government usually provides some financial support to the issuer, such as by injecting the land to the issuer or other assets to expand the size of its net assets, by granting the issuer functions of urban infrastructure projects and provide government subsidies to improve its profitability.Local governments to provide financial support to quasi-municipal bonds issuers, the main purpose is to enhance the financial strength of the main issue. Bond investors measure the risk of default on the bonds, the difference is mainly reflected in bond yields and the risk-free rate. In this paper, the empirical validation of quasi-municipal bonds issuers provides financial support to be able to effectively reduce the issue spreads. However when the investors for quasi-municipal bonds assess the risk of default, they have more eyes on the solvency of local government, rather than the finance condition of itself.On this basis, the author proposed to clarify the legal status of quasi-municipal bonds according to investment projects. Meanwhile, the local government should be given the right to issue municipal bonds to reduce rent-seeking problems in the process of quasi-municipal bonds issued. Finally, tax reform will make the powers and responsibilities of local infrastructure more match.The writing of this paper consists of six parts:The first part is the background, according to the results of2013the National Audit Office of China’s local government debt audits, introduce the significance of this study, research and ideas, the paper’s main research method selection and innovation.The second part of this paper is mainly involved in UDIC, quasi-municipal bonds and other related concepts to define, compare quasi-municipal bonds and U.S. municipal bonds. This section also scholars of previous investment and debt credit risk and corporate bond credit spreads research conducted comb. In the process of combing the results of previous studies, the author issue:the city of scholars in the past voted for class corporate bond credit spreads mainly in two aspects:First, by way of standard research on quasi-municipal bonds sort out and analyze, the second is an ordinary corporate bond model to study quasi-municipal bonds. The third part is a corporate bond credit spreads theoretical analysis of influencing factors. Introduces the theory of corporate bonds, corporate bonds interest rate decision theory and corporate bond credit risk factors generate theories reason.The fourth part describes the status the city voted class corporate bonds, including the history of quasi-municipal bonds, features of quasi-municipal bonds, risk of quasi-municipal bonds. In this section, the author detailed analysis of case studies of how local governments provide financial support.The fifth part is the empirical part. Interest rate risk is mainly based on the empirical part structure theory and signaling theory, combined with own characteristics of quasi-municipal bonds, study design and empirical analysis. By building a model verify the factor of credit risk of quasi-municipal bonds. Model II reflects financial support to provide implicit government credit guarantees of local governments.The sixth part is the conclusion of the text of the previous research, put forward relevant proposals.