1. Introduction: Affected by policies such as Document No. 15, overseas bonds of Chinese-owned urban investment platforms have begun to issue large amounts of overseas debt in the second half of 2021.
(1) Since the third quarter of 2021, affected by policies such as Document No. 15, urban investment platforms The scale of overseas debt has shown a significant increase in volume. In the third quarter and fourth quarter of 2021, US$9.119 billion and US$11.723 billion were issued respectively (a total of US$20.842 billion). Since 2022, Chinese urban investment platforms have issued a total of approximately US$35 billion in overseas debt, which is at a historical high.
(2) In particular, with the overall reduction of the scale of Chinese overseas debt, Chinese urban investment platforms have become the main force in the overseas debt market of Chinese enterprises. Under the double attack of the Federal Reserve 's continued interest rate hikes and high regulatory pressure, the abnormal performance of Chinese urban investment platforms in overseas debt markets is obviously a helpless manifestation in the context of the tightening of domestic urban investment and financing policies. However, this pressure is slowly emerging, and the cost of urban investment US dollar bonds has exceeded the local government's regulatory requirements for the financing costs of urban investment platforms.
(3) This is mainly because standby letters of credit are widely used in the overseas debt issuance of urban investment platforms during 2021-2022, especially for district and county-level urban investment platforms in some areas such as Jiangsu, Zhejiang and Shandong. Due to the lack of international credit ratings and other circumstances, there is a relatively large demand for certificates, and some active banks are also willing to intervene in the overseas debt business of district and county urban investment platforms by issuing letters of credit.
It should be said that this has promoted the large-scale issuance of Chengtou's overseas debt to a certain extent. The logic is probably that the investors of the Chengtou platform's overseas debt and the notifiers have reached a certain tacit understanding, which to a certain extent has turned the Chengtou's overseas debt business into an inter-bank business, such as several banks mutually agreeing to invest in each other's Chengtou overseas debt issued with a certificate, etc.
2. Basic situation of more than 300 Chinese-funded overseas city investment platforms
(1) The total size of Chinese-funded overseas debts reached 96.7 billion US dollars (583 bonds ), of which US$91.7 billion in US dollar bonds
Since 2019, the volume of Chinese-funded overseas city investment bonds has increased significantly and continues to this day. According to Wind data, there are currently 583 Chinese-invested urban investment bonds in stock, with a scale of US$96.652 billion. However, it may be due to differences in caliber. The above statistics are not completely accurate. Here we further subdivide them according to different currencies. Among them, there are 472 overseas urban investment bonds denominated in US dollars, with a scale of US$91.713 billion; 30 overseas urban investment bonds denominated in euros, with a scale of 2.437 billion euros; 27 overseas urban investment bonds denominated in RMB, with a scale of 20.971 billion yuan; and 2 overseas urban investment bonds denominated in Hong Kong dollars, with a scale of HK$2.918 billion.
(2) The regional distribution of Chinese overseas debt is relatively concentrated
1, mainly in Jiangsu, Zhejiang, Shandong, Sichuan and Guangdong, Huzhou, Yangzhou, Shaoxing and other non-provincial capital cities are also relatively active.
At present, in addition to the 31 provincial administrative regions , except for four regions including Inner Mongolia, Tibet, Qinghai, and Hainan, the remaining 27 provincial administrative regions have overseas debt urban investment platforms. At the same time, the number of overseas debt-based urban investment platforms is relatively concentrated, mainly distributed in Jiangsu (60), Zhejiang (53), Shandong (37), Sichuan (23), Guangdong (15), Shaanxi (13), Henan (11), Jiangxi (11), Hunan (10) and other regions.
Among them, Huzhou (16 companies), Chengdu (15 companies), Jinan (12 companies), Yangzhou (11 companies), Xi'an (10 companies), Nanjing (8 companies), Qingdao (7 companies), Shaoxing (7 companies), Wuxi (7 companies) , Guangzhou (7 companies), Wuhan (7 companies), Kunming (7 companies), Taizhou (6 companies), Hangzhou (5 companies), Zhengzhou (5 companies), Ningbo (4 companies), Jiaxing (4 companies), Taizhou (4 companies), Zhangzhou (4 companies). It can be seen that non-provincial capital cities such as Huzhou, Shaoxing, Jiaxing, and Taizhou in Zhejiang, Yangzhou and Taizhou in Jiangsu, and Zhangzhou in Fujian have more overseas debt issuance platforms.
2, the total assets of 300 Chinese-funded overseas debt-based urban investment platforms are close to 40 trillion, and the stocks in Zhejiang, Shandong, Guangdong and Sichuan are relatively large
(1) The total assets of more than 300 Chinese-funded overseas debt-based urban investment platforms have reached 39.79 trillion. Among them, Sichuan (6.14 trillion), Shandong (4.25 trillion), Guangdong (4.10 trillion), Jiangsu (4.04 trillion), Zhejiang (3.59 trillion), Beijing (2.42 trillion), Yunnan (2.13 trillion), Hubei (1.66 trillion), Jiangxi (1.47 trillion), and Henan (1.33 trillion).
(2) From the perspective of the existing overseas debt scale, from high to low, they are Zhejiang (14.950 billion yuan), Shandong (12.704 billion yuan), Jiangsu (11.485 billion U.S. dollars), Guangdong (7.078 billion U.S. dollars), Sichuan (6.824 billion U.S. dollars), and Beijing (3.917 billion U.S. dollars) , Henan (USD 3.730 billion), Jiangxi (USD 3.416 billion), Fujian (USD 3.308 billion), Hubei (USD 2.812 billion), Chongqing (USD 2.751 billion) ), Yunnan (USD 2.498 billion), Shaanxi (USD 2.325 billion), Anhui (USD 2.3 billion), Hunan (USD 2.125 billion) and Gansu (USD 1.260 billion).
In addition, Sichuan, Beijing, Guangdong, Jiangsu, Yunnan, Shandong, Tianjin, Jiangxi and Zhejiang have issued Euro overseas bonds, and Shandong, Sichuan, Jiangsu, Zhejiang, Beijing, Shanxi, Hunan, Henan and other regions have also issued RMB overseas bonds.
3. Basic situation of Chinese-invested overseas urban investment bond policies
(1) A brief history of overseas urban investment bonds
1. On September 14, 2015, the National Development and Reform Commission issued the "About Promotion "Notice on the Reform of the Registration and Registration System for the Issuance of Foreign Debts by Enterprises" (Foreign Development and Investment (2015) No. 2044) changed the registration and approval system for overseas debt issuance by enterprises to the registration system, and officially opened the financing window for urban investment, real estate and other market entities to use overseas low-cost funds. Urban investment platforms began to participate in the overseas debt market one after another and became an important issuance entity in the Chinese overseas debt market.
2. In response to issues such as the overall low rating of overseas bond issuance urban investment companies, the rapid growth in the scale of overseas bond issuance by real estate companies, the greater risks of overseas bond issuance, and the general credit status of some bond issuance companies, on May 11, 2018, the National Development and Reform Commission and the Ministry of Finance The Ministry of Finance jointly issued the "Notice on Improving the Market Discipline Mechanism to Strictly Prevent Foreign Debt Risks and Local Debt Risks" (Fagai Foreign Investment (2018) No. 706), which clearly stated the following requirements for overseas debt:
(1) Support overseas financing of large enterprises with strong strength, high level of international operation, and sound risk prevention and control mechanisms.
(2) requires enterprises planning to borrow foreign debt to have a complete corporate governance structure, management decision-making mechanism and financial management system to achieve physical operations. At the same time, the enterprise must strengthen the entire process management of "borrowing, using and repaying" foreign debt.
(3) Encourage corporate foreign debt to raise funds mainly to support innovative development, green development , emerging industries, high-end manufacturing as well as the "Belt and Road" construction and international production capacity cooperation. For investment projects supported by foreign debt funds, a market-oriented investment return mechanism must be established to form sustained, stable, reasonable and feasible financial expected returns.
(4) Standardize the disclosure of information on foreign debts of companies planning to borrow. In relevant documents, it must be made clear that the debt-issuing company, as an independent legal person, is responsible for repaying the debt.
(5) Guide companies planning to borrow foreign debt to pay attention to changes in the foreign exchange market, make flexible use of currency swaps, interest rate swaps, forward foreign exchange transactions, options, swaps and other financial products, hold foreign exchange positions reasonably, and effectively prevent and control foreign debt risks.
(6) Strengthen supervision and accountability of illegal bond-issuing enterprises, intermediaries and other entities and their principal persons in charge, implement cross-department joint punishment, make timely public notifications, and restrict relevant responsible entities from new applications or participation in foreign debt filing and registration.
3. On February 18, 2019, the National Development and Reform Commission issued the "Guidelines on Enterprises' Application for Foreign Debt Filing and Registration Certificates."On June 6 of the same year, the National Development and Reform Commission issued the "Notice on the Relevant Requirements for Registration and Registration of Foreign Debt Issuance by Local State-owned Enterprises" (NDRC Foreign Investment (2019) No. 666), which clarified that local state-owned enterprises' application for registration and registration of foreign debt issuance must continue to operate for no less than three years, and the foreign debt issued by local state-owned enterprises that undertake local government financing functions can only be used to repay medium- and long-term foreign debt due within one year.
(2) The main motivations for domestic market entities to be keen on overseas issuance of bonds
Despite frequent policy changes, before the second quarter of 2019, the Chinese overseas debt market was generally small and did not significantly increase its volume. The background was that the domestic financing environment did not tighten significantly during this period, the need for urban investment to raise funds overseas was not high, and the policy environment was not particularly friendly. After the second quarter of 2019, affected by Document No. 15, domestic urban investment platform financing policies began, and some platforms had to turn to overseas financing, which promoted the overseas debt of Chinese urban investment companies to begin to increase. This has been especially obvious since the third quarter of 2021, with the quarterly issuance scale remaining at around US$10 billion. In general, the reasons why domestic market entities are keen on overseas issuance of bonds to raise funds are roughly as follows:
1. The overall cost of overseas financing is low, which is conducive to making full use of the two markets to save capital costs for enterprises.
2. Domestic financing channels are not smooth enough or are obviously restricted. There are certain differences in the degree and pace of policies at home and abroad. Overseas supervision will generally be looser, causing companies to go overseas intentionally or unintentionally.
3. Although there is exchange rate risk in overseas bond issuance, it can be locked in through hedging and other products.
4. The use of overseas bond issuance funds is relatively flexible, and the process is relatively convenient. For example, it can be used for project construction, replenishment, loan repayment, borrowing new and old , etc.
5. The main investors in overseas bonds are overseas branches of domestic institutions. This means that the issuers and investors have not changed much, but the issuance process, requirements and policies have improved overseas.
4. The logic of overseas financing has changed recently
(1) The overall overseas debt policy of urban investment companies has recently tended to be tightened
The large-scale issuance of Chinese overseas urban investment bonds in 2019 has attracted attention at the policy level and has shown certain signs of tightening. For example, around April 25, 2022, Chengtou's overseas debt issuance was subject to the guidance of window , which clarified that (1) the total proportion of income from construction agency and land consolidation cannot be higher than 50% (resettlement housing for shed conversion is not counted as government revenue), and the proportion should not be close to 50%; (2) the proportion of replenishment is not higher than 20%, and the scale of bond issuance (including cumulative balance) is not higher than 40% of net assets; (3) the average net profit in the past three years can cover bond interest, and project income can cover costs.
For another example, since the second half of 2022, the practice of supporting the issuance of bonds by urban investment platforms through certification since 2021 has also received some window guidance from the regulatory authorities, and more stringent requirements have been put forward for certification banks and issuers. Development and Reform, Foreign Exchange Administration Other departments have also put forward some new requirements (such as requiring verification of the income of pre-investment projects with bond issuance funds, etc.), and some banks have also taken advantage of the trend to tighten the provision of backup certificates (SBLC) for urban investment platforms, making some urban investment platforms unable to renew their overseas debts, and have to choose domestic guarantees for external loans , domestic guarantees for overseas loans, etc. to repay debts.
(2) Supervision of medium and long-term foreign debt is also expected to be tightened
On August 26, 2022, the National Development and Reform Commission issued the "Measures for the Review and Registration of Medium- and Long-term External Debt of Enterprises (Draft for Comment)", clarifying the "On Promoting the Registration of Enterprises' Issuance of Foreign Debt" issued on September 14, 2015 "Notice on the Reform of Registration System Management" (Fagai Foreign Investment (2015) No. 2044) will be abolished at the same time, which means that the regulatory environment for medium and long-term foreign debt has changed and the overall direction has become stricter. For example, it has clarified that foreign debt has shifted from "recording and registration" to "review and registration", improved the qualifications of issuers, included domestic enterprises' indirect overseas borrowing of foreign debt into full-scale management, and refined the negative list of uses of foreign debt funds, etc.
Although it is only consultation draft , the trend has changed. It is reported that the policy level now has not only rating requirements for overseas debt issuers, but also qualifications (especially District and county-level platforms), income structure (such as agency construction accounting for no more than 50%, etc.), guarantee situation (such as whether a guarantee letter can be provided, etc.), verification of pre-investment project income, foreign debt filing and registration (overseas funds in the platform category need to be communicated in advance), etc. Stricter requirements have also been put forward.
(3) The financing cost advantage of overseas US dollar debt is no longer
One of the previous advantages of overseas debt financing was the lower cost. However, since March this year, as the Federal Reserve continues to raise interest rates, the cost of overseas debt financing has continued to rise, making the motivation to reduce costs through overseas debt financing significantly weakened. For this reason, some entities have chosen to solve the above difficulties by issuing overseas debt in non-USD currencies, but the effect is not ideal. The reasons include that the euro debt itself also needs to withstand the pressure of rising euro interest rates, and it is difficult to support investments in non-USD currencies.
However, this should be a direction encouraged at the policy level, that is, optimizing the term structure of overseas debt through a combination of multi-currency bonds.
(4) Local governments are encouraged to conduct overseas financing
Since this year, another logical change at the policy level is that local governments are encouraged to conduct overseas financing to provide benchmark pricing for Chinese enterprises in overseas financing and optimize the overseas bond yield curve . For example, on October 31, 2022, the Ministry of Finance issued the "Implementation Opinions on Supporting Shenzhen's Exploration of Innovative Fiscal Policy Systems and Management Systems" which proposed supporting Shenzhen to continue to issue offshore RMB local government bonds overseas and promote the interconnection of the Guangdong-Hong Kong-Macao Greater Bay Area.
For another example, Hong Kong's 2022 policy address also proposed to "promote Hong Kong to become the first choice financing platform for mainland and overseas governments and green enterprises... strive to expand the issuance of government green bonds ... It is planned to increase the total issuance of government green bonds by more than five times compared with 2021-2022." Macau’s 2023 policy address also makes this request.
Therefore, from a broad perspective, it can be basically expected that the mainland government’s overseas bond issuance and financing will become a new trend.
(5) Spontaneous attempts by the market: Free Trade Zone Bonds
As restrictions on overseas debt issuance become increasingly apparent, free trade zone RMB bonds, which have price advantages (pricing follows domestic logic), have basically no difference in investor composition from US dollar bonds, and are immune to interest rate risks, are favored to a certain extent. Although the issuer of the free trade zone needs to have international ratings and approval documents may not be easy to obtain, considering that the current free trade zone bonds are still a blank area of foreign supervision, the current and subsequent free trade zone bonds should belong to the window period and need to be grasped carefully.
The requirement for free trade bond issuers to have an international rating is often applicable to entities with a record of issuing bonds overseas. Therefore, Chinese-funded overseas debt urban investment platforms have a natural fit.
5. Conclusion: Urban investment platforms with overseas bond issuance experience have more expansion value and have relatively better qualifications
For the approximately 10,000 urban investment platforms across the country, the more than 300 urban investment platforms with overseas bond issuance experience have more value in terms of corporate governance, market recognition, overall strength, and local government support.
(1) The relatively clear direction at the policy level in the near future should be to prevent foreign debt risks in key industries and key regions by restricting the foreign debt financing of low-rated, low-qualified, low-level and market entities, especially short-term foreign debt financing, while encouraging the optimization of the structure of foreign debt currency, term and price. That is to say, the general direction for the current and future period is to strive to increase the proportion of high-quality market entities in non-US dollar currencies, medium and long-term and foreign debt, while controlling the total amount.
For example, on March 5, 2022, the National Development and Reform Commission clearly stated in the "Report on the Implementation of the National Economic and Social Development Plan in 2021 and the Draft National Economic and Social Development Plan in 2022" that it is necessary to optimize the classified management of corporate foreign debt and improve the regulation of foreign debt for real estate, local financing platforms, and low-credit enterprises.
For another example, on February 4, 2022, the National Development and Reform Commission wrote that it will continue to encourage and support high-quality enterprises to rationally use medium and long-term foreign debt for key areas such as technological innovation, advanced manufacturing, green development, and new infrastructure. It will actively guide enterprises to optimize the interest rate and term structure of foreign debt, and resolutely curb new local government hidden debts.
(2) Although most urban investment platforms with overseas bond issuance records are of high quality, there are some exceptions. The difference in the cost of overseas bond issuance also reflects to a certain extent the market’s recognition of overseas debt urban investment platforms. This means that for the more than 300 Chinese-funded overseas debt and urban investment platforms, it is still necessary to pay attention to the tail risk of and .
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