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Fitch has discussed the directive with market participants and the relevant Chinese authorities, and concluded that the intention of the directive is in line with our initial interpretation ("Fitch Reviews NDRC/MoF Statement for Potential Impact on Chinese LRG-GREs", 30 May 2018) which was that it aims to deter creditors of GREs from assuming automatic local government (LG) support, particularly as local government funding vehicles (LGFVs) with weaker credit profiles and policy functions look to raise offshore funding.
Moody's report points out that while the government's latest measures on local government financing vehicles (LGFVs) and state-owned enterprises
Replacing LGFV debt with directly issued local government bonds which are more strictly regualted and monitored should lower LRG's financing costs.
Local governments in China have a limited revenue base and have been legally disallowed from borrowing, so they have resorted to creating Local Government Financing Vehicles (LGFV) to raise funds, predominantly from banks.
As a result, Fitch believes its practices and rating approach towards LGFVs are appropriate and represent a consistent interpretation of the Chinese authorities' current policy directives.
The government said that banks that had agreed to finance construction projects backed by local government financing vehicles (LGFVs) before the end of 2014 should not go back on their commitments.
time, Moody's has assigned a (P)Aa2 senior secured rating to the LGFV's
Following the issuance of a new directive by the Chinese authorities aimed at tightening the access of LGFVs or state-owned enterprises (collectively known as GREs) to offshore bond markets, Fitch is reviewing the directive for evidence of any change in practical support as measured by our criteria.
government financing vehicles (LGFVs), Moody's estimates that every 10%
LGFV loans by banks have been capped at end of 2012 levels.
The link reflects strong oversight and supervision of HanRui by the Zhenjiang government and the company's strategic importance as the flagship local government funding vehicle (LGFV) platform for public-sector construction in Zhenjiang New Area, a national-level economic and technological development zone.
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