Financial Support Of Local Governments For The Issuance Of Corporate Bonds By City Investment Enterprise And Issuance Credit Rating And Spread Analysis

As an important financing method for local governments,fundraising through quasi-municipal bonds is the main source of funding to meet local urban infrastructure construction needs.Since most of the issuers have government backgrounds,the market generally believes that the bond is financially endorsed by the government.With the frequent occurrence of defaults in the credit bond market in recent years,the credit bond market,especially the quasi-municipal bonds,has received extensive attention from the academic community.However,previous related researches basically took the government’s implicit guarantee as the starting point to explore the factors affecting bond risk spreads.There is less research on the various types of financial support for financing platforms by local governments before the issuance of urban investment bonds.In January 2015,with the promulgation of the "Administrative Measures for the Issuance of Corporate Bonds" by the China Securities Regulatory Commission,the scope of issuers of corporate bonds has been expanded,and corporate-system legal persons established in China can issue corporate bonds.Due to restrictions on the issuance of corporate bonds by local financing platforms,some local financing platforms have adopted the method of withdrawing from the list of financing platforms of the China Banking Regulatory Commission to meet the issuance requirements,and no longer belong to local government financing platforms in name,and platform-like enterprises have begun to develop rapidly.Compared with traditional local platform companies,these companies may have more risks than traditional local platform companies because they have just begun market-oriented transformation and are free from the "hidden guarantee" of local governments.Most previous studies focused on the corporate bonds issued by urban investment companies,ignoring the bond issuance of platform-like companies.This paper sorts out the current corporate bond issuance rules in China,combined with the characteristics of platform-like companies,and summarizes the three commonly used financial support methods for platform-like companies before issuing bonds by local governments.Through government subsidies,the allocation of land use rights,and the integration of state-owned enterprise equity,the issuer’s net profit and net assets and other indicators can meet the issuance requirements.The article uses empirical research methods,based on the financial data of similar local government financing platforms and bond issuance data,and explores the three typical financial support behaviors of local governments on platform companies before issuing bonds and the impact of this behavior on spreads and ratings.The article selects platform-like urban investment bonds that were first issued and listed in 2015-2019 as a sample,and empirically found that for platform-like companies in the two years before the issuance of bonds,the degree of financial support for the platform by local governments was significantly greater than in other years.In order to enable platform-like companies to rapidly expand their asset scale and increase their profitability,local governments use financial support to help platforms meet the bond issuance threshold.This paper further examines the impact of local government’s financial support before bond issuance on issuance ratings and spreads.Through empirical research,it is found that the local government’s support measures for platform-like companies before bond issuance have indeed increased the initial bond credit rating,but have reduced The financing cost of bonds has no significant impact.According to the empirical results,two of the three forms of government financial support,raising government subsidies and land asset allocation,have a significant effect on the rating.The equity integration of stateowned enterprises is more a function of increasing the scale of company assets,and it has a limited effect on rating.The empirical results show that the government’s financial support for platform-like companies will not have a significant impact on the spread.This may be due to the issuer’s payment model in the current rating market,and the binding of interests between the issuer and the rating agency makes bond ratings fail to fully reflect the true bond default risk.Market investors may correct this through the internal rating system,which makes the response of rating agencies and market investors to this behavior different,and the degree of market information asymmetry has intensified.At the end of the article,it puts forward relevant policy recommendations to clarify the relationship between the local government financing platforms and the government,clarify their market-oriented operation positioning,increase the promotion of the internal transformation of platform enterprises,and weaken the government’s support.Improve the credit rating system,ensure the fairness and independence of rating agencies,strictly control the financial risks of local governments,stabilize the local economy under the current policy of preventing and resolving major risks,resolve local financial risks,and promote the sound development of the market.