(Yicai) June 3 -- The reform and modernization of China’s many indebted urban investment and financing entities is gathering pace as tighter financing conditions force change, according to experts.

The situation is expected to remain tight for the issuance of urban investment bonds -- debt sold by local government financing vehicles to fund public welfare or infrastructure projects -- at least through next year, Zhang Qinniu, vice president of Dagong Global Credit Rating, said at a recent seminar.

Net financing of urban investment bonds has been falling since last August, putting pressure on the platforms’ liquidity, Han Xiliang, deputy general manager of a department at Dagong Global Credit Rating, said at the same event.

The landscape has shifted since the central government stepped up its regulatory overhaul in recent years to reduce off-balance-sheet borrowing by local governments to mitigate risks.

Local authorities are undertaking a root-and-branch transformation of urban investment and financing entities involving efforts toward marketization and industrialization. Marketization includes privatization, financial independence, and attracting private investment, while industrialization focuses on diversification and professional management.

These efforts are aimed at improving efficiency, sustainability, and financial health at the platforms, while addressing the challenges of changing to a more market-oriented model. The challenges faced include high debt levels and market conditions.

Traditional urban investment and financing entities face ongoing restrictions on new financing, which should prompt some to actively change, Zhang said, adding that these efforts could help them gain more market recognition, which in turn could result in a more relaxed financing environment.

Two paths to transformation are open to them at present, according to Han. One is directed at securing financing, emphasizes short-term results, and aims to ensure that the firm’s operations receive continuous financial support, he said, while the other is development-oriented, focusing on effectively improving operational capabilities and achieving marketization and industrialization.

Han predicted that infrastructure investment will continue to be an important growth driver for urban investment companies after successful transformation. Additionally, acquiring unsold properties on the market and engaging in market-oriented asset operations could also provide them with new growth opportunities.

Acquiring operational assets, or even directly buying listed companies, is a relatively fast route to change, especially targeting publicly traded firms that match local resources, said Luo Qiang, fixed income managing director at Caida Securities. Some urban investment entities are also attempting to become operators of emerging data assets, he said.

After successfully transforming, urban investment entities can carry out market-oriented financing and sever their credit links with local governments, said Wen Laicheng, a professor at the Central University of Finance and Economics.

Editors: Tang Shihua, Emmi Laine