Analysis Of Factors Influencing The Financing Cost Of Municipal Investment Bond From The Perspective Of Implicit Government Guarantee

Municipal investment bonds,also known as quasi-municipal bonds,which refer to bonds issued by local government investment and financing platform to raise funds for local economic and social development.The types of bonds issued include short-term financing and margin trading,corporate bonds,financial bonds,non-public directional financing instruments,etc.As the second largest economy in the world,there is no real municipal bond in our country.Instead,the tremendous growth in the infrastructure development is financed to a large extent through so called municipal investment bonds.While its large size,fast growth,and the central role in China's development make the municipal investment bond market interesting to study in and of itself,there are distinctive features that make it uniquely suited to investigate the effect of government guarantees,political risk,and distortions in market pricing induced by such effects.Generally speaking,the municipal investment bond embodies the typical characteristics of municipal construction debt.But unlike foreign government bonds or municipal bonds,municipal investment bonds are issued by urban construction investment enterprises.As these investment enterprises are the credit subject established by the local government,their shareholder background,business direction and corporate governance are inextricably linked with the local government.Once a municipal investment debt faces a payment crisis,the local government will probably provide the final debt repayment assistance and debt repayment guarantee,that is,the local government has actually become the implicit guarantor of the financing platform.With the gradual decline of the broad financing cycle,the boom of municipal investment bonds in the past has gradually ended.It can be predicted that the future prospect of municipal investment bonds may be that the refinancing pressure will gradually increase and the past valuation and pricing system needs to be reshaped.It should not be neglected that because there is a relationship between the issuer of municipal investment bonds and the local government,the appraisal of the credit level of all municipal investment bonds should be significantly different from the other credit bonds.Therefore,it is a unique point of view to analyze the financing cost of municipal investment bonds from the perspective that the local government acts as an implicit guarantor behind the financing platform.Meanwhile,as the state strictly monitors the risk of local debt and vigorously prevents the local debt risk,it is of greattheoretical value and practical significance to analyze the impact of the implicit local government guarantee on the financing cost of municipal investment bonds.From this point,the paper systematically studies the impact of local government's implicit guarantee on the financing cost of municipal investment bonds,starting from the significant difference between municipal investment bonds and general corporate bonds.In view of the fact that the yield spread of the first-class issuing market of municipal investment bonds is the main determinant of the pricing of municipal investment bonds,this paper takes the yield spread of municipal investment bonds as the explanatory factor,the implicit guarantee of local government as the core explanatory variable,and the conventional risk factors at three levels of financing platform,bond itself and macro-economy as the control variable.Based on those variables,two empirical models are constructed to explore whether the implicit guarantee of the local government to the financing platform will affect the yield gap of municipal investment bonds,and whether the characteristics of the financing platform will restrict the impact of the implicit guarantee on the yield spread.Using the sample data of municipal investment bonds issued between 2009 and 2017,and through empirical analysis,this paper draws two conclusions: First,the impact of implicit guarantee of local government on the yield spread of the primary market of municipal investment bonds is significant,as when municipal investment bonds are facing the payment crisis,the stronger the implicit guarantee willingness and ability of local governments are,the smaller the debt repayment risk of municipal investment bonds will be,hence the cost of first-level debt issuance of financing platform will be lower.Secondly,compared with the operational financing platform,the debt pricing of the investment financing platform is more sensitive to the implicit guarantee factors of local governments.Because the public welfare projects undertaken by investment financing platforms can hardly produce stable cash flow and lack of hematopoietic capacity,the debt repayment of investment financing platforms is more dependent on the financial subsidies of local governments.Finally,this paper puts forward corresponding suggestions and measures from three aspects: local government,issuer of municipal investment bonds and financing platform.