Bond Enhancement,Credit Rating And Financing Cost Of Municipal Investment Bonds

As China’s urbanization construction enters a new stage,local financing platforms have increased the debt pressure of local governments while solving the problem of capital shortage and promoting municipal construction,which is not conducive to sustainable economic development.For this reason,the regulatory authorities have frequently issued relevant policies aimed at breaking the rigid payment expectations of urban investment bonds,making the hidden guarantees behind local government financing platforms visible,and forming an issuance price mechanism adapted to the market economy.According to whether the bonds are issued with public commitments and whether the government’s guarantee responsibilities and obligations are clearly defined in law,the bond credit enhancement methods of urban investment bonds can be divided into two types:implicit guarantee and explicit guarantee.After the central government "No.43" clearly stripped the implicit guarantee of local government for urban investment bonds,on the one hand,whether the implicit guarantee of local government can still effectively reduce the issuance risk of urban investment bonds,on the other hand,in the process of gradually changing the credit enhancement mechanism from implicit government guarantee to explicit guarantee of market operation,what is the impact of explicit guarantee mechanism on urban investment bonds financing cost? What kind of impact does the explicit guarantee mechanism have on the financing cost of urban investment bonds? There are doubts in the market about this.Moreover,no matter which bond guarantee is a credit enhancement measure,credit rating is also a credit enhancement measure in the process of issuing urban investment bonds,so is there any connection between bond guarantee credit enhancement measures and credit rating?In order to answer the above questions,this paper examines the impact of bond credit enhancement on the financing cost of municipal investment bonds and the interaction between bond credit enhancement and credit rating,using the municipal investment bonds issued by local financing platforms from 2014 to 2020 as a research sample.First,this paper uses multiple linear regressions to examine the effects of two types of bond credit enhancement mechanisms,implicit government guarantee and explicit guarantee,on the financing cost of municipal investment bonds.Second,in order to investigate the interaction between bond credit enhancement and credit rating on the financing cost of municipal investment bonds,this paper examines whether there is a difference in the impact of bond credit enhancement on the financing cost of municipal investment bonds under different credit rating levels.Furthermore,in order to investigate the differences in the impact of bond credit enhancement on the financing cost of municipal investment bonds,this paper examines the heterogeneity of the impact of implicit government guarantees on the financing cost of municipal investment bonds in different issuing regions and explores the heterogeneity of the impact of explicit guarantee mechanisms on the financing cost of municipal investment bonds under different local financial conditions.This paper finds that:(1)two types of bond credit enhancement methods,implicit government guarantee and explicit guarantee mechanism,can significantly reduce the financing cost of urban investment bonds.(2)The higher the credit rating of urban investment bonds,the more significant the effect of implicit government guarantee and explicit guarantee mechanism on their financing cost reduction.(3)Compared with the eastern region,the implicit government guarantee has a more significant effect on the reduction of financing cost of urban investment bonds in the central and western regions.(4)The better the financial status of local governments,the smaller the impact of explicit guarantee mechanism on the financing cost of urban investment bonds.In response to the above research findings,this paper proposes the following three countermeasures: First,implement the prevention of urban investment debt risks.Strengthen the screening of local government debts,clarify the relationship between local governments and financing platforms,gradually break investors’ expectations of rigid payment on urban investment bonds,and rectify the bond market discipline.Second,strengthen the guarantee capacity of guarantee companies.The guarantee company should take the responsibility of improving its own operating capacity,giving full play to its own advantages and ability to resist risks.Third,improve the credit rating system.The government should make great efforts to improve the credit rating system,change the rating mechanism of "issuer pays",accelerate the establishment of the rating model of institutional investors paying,and reduce the room for collusion between urban investment companies and rating agencies.