Qingdao's financing arm plans US-dollar bond issue

BEIJING • A Chinese local government financing vehicle (LGFV) that has already tapped international investors once this year for US-dollar debt is at it again, planning this time on selling notes with no set maturity as Premier Li Keqiang seeks to curb the regional authorities' yuan borrowings.

Qingdao City Construction Investment Group, the investment and financing platform of north-eastern coastal city Qingdao, home to Tsingtao beer, has been meeting investors in Singapore and Hong Kong ahead of a possible offering, people familiar with the matter said.

A US-dollar perpetual securities sale would be a first for LGFVs, whose issuance of regular foreign- currency bonds totals at least US$3.9 billion (S$5.5 billion) this year, Bloomberg-compiled data shows.

Chinese LGFVs, set up in the thousands from the 1990s to circumvent a law that banned local governments from raising debt directly, have cut yuan-denominated offerings by 63 per cent this year to 488.7 billion yuan (S$108 billion).

Mr Li is phasing out some LGFVs and has implemented a 3.2 trillion yuan debt swop programme that permits regional authorities to swop high-yielding LGFV debt for lower-yielding municipal bonds.

"LGFVs would love to issue bonds overseas where they can borrow at lower costs and for longer terms," said Everbright Securities economist Xu Gao in Beijing. "Onshore bond sales by LGFVs have declined this year as the government curbed local government debt."

Qingdao City Construction Investment's notes will carry a keepwell agreement and a cross-border standby facility from its onshore parent.

The facility acts as a type of credit enhancement, ensuring Qingdao City will repay the bonds should the offshore issuing entity meet with distress, according to Fitch Ratings credit analyst Mao Saifeng.

Proceeds from the planned sale will be used to replenish working capital and for general corporate purposes, the people familiar with the matter said, asking not to be identified as the details are private.

Other LGFVs that have sold US-dollar bonds this year include Tianjin Binhai New Area Construction & Investment Group, Anhui Transportation Holding Group and Guangzhou Communication Investment Group.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 15, 2015, with the headline 'Qingdao's financing arm plans US-dollar bond issue'. Print Edition | Subscribe