Practice Research On The Key-part Management Of Offshore Bond Issuance Of Local Government Financing Vehicle

In 2015,The Chinese offshore dollar bond(Kungfu bond)market entered the first year of filing,partly due to the gradual development of the market,and on the other hand,it is to facilitate the opening-up policy and and pave the way for "The Belt And Road Initiative".From then on,the regulatory policy for Chinese enterprises to issue bonds in the offshore market was greatly simplified.In 2016,the Chinese offshore dollar bond issuance exceeded $100 billion for the first time,with a net increase of $89.5 billion that year.In the first 10 months of 2019,issuance and net growth reached an all-time high of$184.1 billion and $109.7 billion respectively.Despite the relatively small share of issuance in the offshore market(about 10 per cent of the total Chinese dollar bond market)compared with the real estate and financial sectors,offshore issuance is one of the important financing channels for local government financing vehicle(LGFV).What is the motivation for more and more LGFVs to issue offshore bonds,which processes do they need to go through,and which key parts need to be paid attention to in order to facilitate the issuer to carry out the financing at a lower cost? These are the questions that this paper hopes to answer.In this paper,X Group,a provincial LGFV,is selected for comparative analysis of two offshore bond issuance.As an investment and financing platform of S Province,X Group undertakes the important mission of promoting the transformation of old and new driving forces and adjusting of state-owned capital distribution structure in market-oriented means.Issuing bond in offshore market is an important task after its restructuring.Offshore bond issuance involves multiple parts,this paper,by comparing its two issuance results,like how to choose the issuing mode,how to choose the timing of pricing,access to international rating,how to set the target price and etc.gives the answer of how to make an ideal plan for offshore bond issuance.In terms of research methods,this paper adopts a combination of aspects.The literature research method was used to sum up the issues of bond pricing and bond rating.The case analysis method is used to analyze the specific operations of X Group in various parts,such as the issuance mode,pricing method,selection of pricing time,and adoption of international rating,so as to explore a set of efficient issuance practice scheme.The comparative analysis method was used to summarize the improvement of X Group’s offshore bond issuance behavior in the second time compared with the first time,and how to achieve the lower-cost bearing;By using the empirical analysis method and taking the credit spread of LGFV dollar bond issuance as the explained variable,a multiple regression model is established to explore the factors influencing pricing.Logically,first of all,this paper firstly analyzes the current situation of LGFV offshore bond issuance since 2014,in terms of issuer’s administrative rank,issuer’s region,bond term,bond rating,bond coupon rate and etc.Secondly,relevant policies and regulations of Chinese offshore dollar bonds,as well as the whole issue process are sorted out.This paper also elaborated the motivation for LGFV offshore bond issuance,to pave the way for the case analysis.Taking the evaluation of the first offshore bond issuance of X Group as the entry point,this paper finds that the issuance mode is not reasonable,the pricing method is not reasonable,the pricing time point is not reasonable and the international rating is missing,which leads to the high financing cost.Subsequently,this paper makes an in-depth analysis of these four aspects and provides suggestions for X Group.After making improvements on these aspects,X Group significantly reduced the financing cost,which did lay a solid foundation for future financing.Through in-depth study and research,this paper drew the following conclusions: first,when choosing the issuance mode,the issuer needs to take its own strategic position,the aim of financing,international credit rating,investors’ preference and reasonable money reverting scheme into consideration,to analyze the overall cost of each type of financing to ensure the most efficient and economic finance.Second,the credit spread of LGFV offshore bond is significantly related to the domestic and international rating of the issuer.To obtain a reasonable price range,the issuer can refer to the credit spread of other same rating subject and can also refer to the secondary market price of existing bonds.Third,The selection of issuing time point is based on the maturity of the outstanding debts and the influence of the macroeconomic trends of both domestic and foreign markets.In addition,the issuance window should also be determined from the perspective of investors.Fourth,obtaining an investment-grade rating can significantly reduce financing costs.In the long run,it has a positive effect on future financing.