Implicit Guarantee Of Government,Credit Rating And SOE Bond Pricing

Since the bond,which was issued by Chaori Solar Energy,was defaulted in 2014,bond defaults have occurred more frequently in the past years.Especially with the more downward pressure of macro-economy,China’s bond market is suffering in 2018 as well.However,according to the statistics of bond defaults,it showed that the defaults of private enterprise bonds was even worse than that of SOE bonds.By contrast,the defaults of local SOE bonds and central enterprise bonds was relatively less serious while urban construction bonds were without defaults so far.It may be that the implicit guarantee of the government results in the low default rate of SOE bonds.Bond pricing both in the primary markets and secondary markets is closely related to the enterprise credit rating.Based on the literature research and the market data,the credit rating in China’s bond market was seriously inflated.It was believed that the issuer-paid model was the main cause of this problem.This thesis puts forward the research theme of "implicit guarantee,credit rating and pricing of SOE bonds" at the time.Considering the availability of data,two samples were selected in this thesis.The first sample includes short-term financing bills,corporate bonds,enterprise bonds,medium-term notes and PPN,which were issued by SOE from January 1,2009 to June 30,2018.And the another one contains the same types of bonds issued and traded from January 1,2012 to October 31,2018.Also,the ologit model and mixed effect model were used for empirical analysis.Several conclusions are drawn as follows:(1)For the same issuer,the credit rating issued by China Bond Rating was generally lower than that of other rating agencies with 2~3 grades.These differences increased incremental information and were identified by investors both in the issuance market and the secondary market,thus expanding the bond interest spread and credit spread.Also,compared to the SOE,the bond investors were more sensitive to the rating differences of the private enterprises and demanded higher returns.(2)Implicit guarantee of the government can significantly reduce the interest spread and credit spread of three different types of SOE bonds,and those of urban construction bonds were most affected.Even in the stage of strong supervision,only local SOE and central enterprises received less assistance from the government,and the bond investors believed that the urban construction bonds would be more protected by the government instead.(3)Implicit guarantee of the government can improve the credit rating of issuers both in the issuing market and the trading market,particularly for urban construction bonds.To test mediating effect of the credit rating of the issue,it turned out that,the issuer’s credit rating had partial mediating effect between implicit guarantee of the government and interest spread of SOE bonds,as it did between implicit guarantee and credit spread of SOE bonds.Finally,this thesis puts forward several suggestions from the four aspects of national regulatory agencies,local governments,credit rating agencies and bond investors.