(Yicai Global) May 13 – Guangdong province, China’s largest regional economy, issued CNY103.51 billion (USD14.6 billion) of local government bonds, setting new records on the Shenzhen Stock Exchange.
The southern province issued 33 government bonds yesterday to fund infrastructure construction in the wake of the coronavirus pandemic. That set record on the Shenzhen bourse for the number and amount of local government bonds issued and was also the first on-site new debt issuance since the outbreak.
The terms range from seven years to 30 years, covering multiple innovative varieties, including a new infrastructure special bond that is a first in China and a water resources special bond.
New infrastructure projects refer to those involving emerging technologies, including fifth-generation wireless network base stations, ultra-high voltage power transmission, intercity high-speed railroad and urban rail transit, electric car charging piles, Big Data centers, artificial intelligence, and industrial internet projects.
The finance ministry once again issued a new batch of special bond issuance indicators in advance and Guangdong will give priority to projects that belong to new infrastructure, an official from the local finance department told Yicai Global.
To encourage investment, the ministry has issued a total of CNY1.29 trillion (USD181.9 billion) in new local government special bonds in two batches this year. China had issued CNY1.16 trillion as of April 15. The third batch of CNY1 trillion has also reached local governments and its sale must be completed by the end of this month.
“We believe that [increasing the amount of local bond issuance] is a major step for the central government to deal with the impact of the Covid-19 pandemic,” the official said. “Guangdong is confident that the funds raised from the bond issue will be allocated to specific projects as soon as possible.”
Most of the bonds are project-specific debt and will directly promote production resumption in related industries, an executive from Agricultural Bank of China, one of the lead underwriters, told Yicai Global.
The recent issuance of large bond amounts shows a more proactive fiscal policy tone, the executive added. In addition, good communication between the regulatory authorities and the market has guided market expectations better, resulting in a generally stable bond market before and after the bond sales.
The market has actively and enthusiastically responded to Guangdong’s bond subscription. The underwriting syndicate formed of 68 financial institutions bid actively, and the interest rates for the bids of various maturities were 25 basis points higher than the benchmark. The total bid size reached CNY1.71 trillion, with a subscription multiple of 16.55 times.
Editors: Tang Shihua, Peter Thomas