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GUANGDONG Province will auction 14.8 billion yuan (US$2.4 billion) in local government bonds Monday next week, becoming the first Chinese local government to ever issue U.S.-style municipal bonds in the country.
Guangdong will auction five-year bonds worth 5.92 billion yuan, seven-year bonds worth 4.44 billion yuan and 10-year bonds worth 4.44 billion yuan, the province’s financial bureau said in a series of documents published late Tuesday.
After the auction, the bonds will be sold from Tuesday to Thursday, the provincial finance bureau said.
The bonds will be listed for trading on Chinese markets later, the bureau said, without giving further details.
China announced in May that it would allow local governments to issue U.S.-style municipal bonds for the first time in an experiment to straighten out its State budget, and start the clean-up of its massive local government debt problem.
The Ministry of Finance announced shortly afterwards that it had granted 10 local governments a combined quota of 109.2 billion yuan to issue such bonds this year.
A slowdown in the world’s second-largest economy has added greater stress on State-own firms with large debts to repay. A senior finance ministry official said earlier this month that the pressure on local governments to repay their US$3 trillion debt is the greatest this year when a fifth of loans are due.
Many analysts have said that the only viable, long-term solution for China with regards to its local government debt problem is to develop a thriving municipal bond market.
By allowing direct bond sales, China can require higher degrees of disclosure in prospectuses and can also allow for the distribution of risk to a wider pool of potential investors.
Chinese local governments at present have limited legal options for fundraising, but have proven nimble at exploiting loopholes. In addition to selling land to raise funds, they have created local government financing vehicles which have gone to the bond and loan markets to raise funds. (SD-Agencies)
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