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China to ease restrictions on bond issuance, encourage project investment: sources
[SHANGHAI] China's top economic planning agency plans to further loosen control over corporate bond sales in a bid to speed up infrastructure spending as economic growth slows, according to a document seen by Reuters and verified by two sources with direct knowledge of the matter.
The document, dated June 19 and labeled "extremely urgent", appears to be a supplement to an document dated May 25 that's available on the website of the National Development and Reform Commission (NDRC).
The NDRC's press department said it was unaware of the June 19 document and declined to comment further.
The document says that corporates rated AA or above can issue corporate bonds without any quota restrictions if they can provide guarantees by pledging their own assets or through a third party, or if the project can offer certain returns within a short period of time.
It also says funds raised through bond issuance can be used to pay off previously-issued bonds or other high interest debt, provided that the corporate issuer has maintained its current credit rating.
Corporates with AA or higher credit ratings which issue bonds that are rated no less than AA+ can use up to 40 percent of the funds raised to pay off bank loans and supplement operating capital.
The NDRC will also encourage province-level local government financing vehicles (LGFVs) to issue bonds to fund projects, according to the document.
Commercially-oriented LGFVs, when participating in projects under China's public-private partnerships (PPP) scheme, can issue corporate bonds without quota restrictions, the document said.
Beijing is pushing the PPP model as a way to increase private investment in public infrastructure, but analysts say the model has yet to catch on among local governments or private investors.
"As overseas demand weakens, the property market cools and the private sector is still reluctant to invest, increasing new infrastructure spending is the only practical way to maintain economic growth," said Li Qilin, a fixed-income analyst at Minsheng Securities Co.
Support for China's economy from the central bank has been put at risk by a surge in municipal bond issuance that has driven up yields, undermining its efforts to cut borrowing costs.
Heavily indebted local governments seeking to refinance expensive debt have issued more than 600 billion yuan of municipal bonds in the past month - more than in all of 2014.