The Analysis On Credit Risk Of Urban Construction Investment Bond By KMV Model

With the accelerating urbanization,urban construction investment bonds arises as a financing tool to local government infrastructure projects at the historic moment.Urban construction investment bonds grow rapidly in recent years but also be controversial because enterprise and government are difficult to separate.New budget law began to implement in 2015.The local government can issue their own local government bonds and based on that new policy,urban construction investment bonds have an uncertain outlook.The urban construction investment bonds the local government has the responsibility to repay are facing the possibility of being replaced and the replacement progress is also uncertain.Although there has been no material default so far for Chinese urban construction investment bond market,some signs of default show the huge crisis hidden behind the market in front of the investors.Urban construction investment bond is one of the most popular financial instruments now and it has outstanding credit risk,which should be quantified at once.As a whole at present,the Chinese mainland already has 31 provinces,autonomous regions and municipalities directly under the central government that have issued urban construction investment bonds.Putting The provincial government as debt credit risk research object is simple and profound.By the end of February 2017,the local government has a total of 6039 bonds before maturity and the total amount is 6.16 trillion yuan.From the scale of issuance over the past years,the urban construction investment bonds come into the development of the blowout period in 2009 and have the trillion mark breakthrough in 2013.The scale declined compared to the same time in previous year because of the new budget law in 2015 while in 2016,the number returned to high level.From issuing scale,debt ratio,Jiangsu province has 1249 outstanding bonds and the total amount is 1.02 trillion yuan,which is at the first place among all the local governments.The Tibet autonomous region has 1 outstanding city bonds and total amount is 0.90 billion yuan,which has the lightest debt.After calculation,Tibet autonomous region has the minimum urban construction investment bond debt ratio which is 0.78%and Tianjin has the maximum which is 21.44%.Tibet autonomous region also has the minimum urban construction investment bond debt ratio after correction which is 6.78%and Chongqing has the maximum which is 161.10%.During the remaining provinces,Hainan province also has lower outcome in anterior indicators,which are 2.03%and 12.86%respectively.The thesis takes the Jiangsu province as the example at first which has the large scale of debt and introduces the steps of applying the data of Jiangsu province to the credit risk measurement model,and then calculates the remaining 30 samples.There are many credit risk measurement models.Among modern measurement models,KMV model avoids abundant datas of history default and mainly estimates credit default probability through forecasting the value of the assets to the company.It does not involve losses due to credit default or bond pricing and other issues and is the most suitable model to the city bond’s credit risk analysis.Local government revenue is equal to the value of the company’s assets and the outstanding debt is equivalent to company liabilities.The local government fiscal income is available by ARIMA model and through the accumulation of each bond’s principal and interest which should be paid at the end of 2017,all debts will be available,too.Then we can get the default probability of each sample after putting all the variables into the modified KMV model.After calculation,the expected debt default rate interval of 31 provincial governments is[0.00%,2.64%]and the highest probability is still less than 5%.That is,there is little possibility of default occurring.According to the empirical results,the thesis draws out the early warning map of the default risk of investment in the urban construction investment bonds in the mainland of China based on administrative units of the provinces.It is divided into six intervals,with the interval of 0.5%.We can see that Chongqing.Jiangsu province,Hubei province,Yunnan province and Hunan province have relatively higher default risk from the map.Taking the empirical process are based on the provincial administrative units into account,the default risk of urban construction investment bonds issued by county,municipal city investment companies is averaged,which means that the default probabilities of some city and county level local government may be higher.The fact should cause investors to be vigilant.The early warning map can guide different types of investors to allocate funds,guide the local governments and the city investment companies to issue bonds in appropriate scale and guide the central government issued a forward-looking policy.Despite the optimistic calculation result,urban construction investment bond is in the stage of change and it’s not the only local government debt.At present,the balance of local government bonds is about 4.40 times the urban construction investment bonds.It is still urgent to prevent and resolve the debt risk and ensure the urban construction investment bond pass through the transition period smoothly.The following suggestions are put forward.Allowing partial default of local government;Changing the original urban construction investment bond into real local government debt;Rectifying and mergering the existing local government investment and financing platform companies;Pushing the work about screening and open;Speeding up the establishment of local government balance sheet.In the future,the separation of government and enterprises is the trend,so the city investment company should be responsible for repayment of urban construction investment bond.The urban construction investment bond will be close to the project income bond and local government bond will become the main instrument for local government financing.