The 2018 Tianjin Municipality Hongqiao District Shantytown Reconstruction Bond (Phase 1) was successfully issued through the MOF-SSE Government Bonds Issuance System on June 20. It marked an official landing of the 1st shantytown reconstruction bond in China after the issuance of the “Notice of Printing and Releasing the ‘Management Measures on Pilot Issuance of Local Governments’ Shantytown Reconstruction Bonds’” by the Ministry of Finance (MOF) and the Ministry of Housing and Urban-Rural Development on March 1.
The above shantytown reconstruction bonds, with the term of 5 years, correspond to the shantytown reconstruction projects in the southern section of Xigu and the Xiyuzhuang of Hongqiao District in Tianjin. The financing scale is expected to be RMB10.8 billion, and RMB1.5 billion of bonds will be issued in this phase. And the future sinking fund will mainly come from the land remising revenue. As calculated according to the financing scale and construction of the projects, the debt-to-service coverage ratio of the future land sale revenue to the financing cost is predicted to be 1.52, presenting a relatively good self-balance prospect. Judging from the issuance, the subscription rate of the bonds reached 2.69; the total biding quantity of securities dealers was RMB1.55 billion; and the coupon rate was 3.88%, 22 base points lower than that of the ordinary bond which is of the same term and issued at the same time.
The shantytown reconstruction bond is another innovative product of the pilot bond with self-balance in revenue and financing launched by the MOF after the land reserve bond and the toll road bond, which has offered a new example for local governments to raise funds for shantytowns’ reconstruction and construction. Shantytown reconstruction is one of the livelihood projects mainly supported by the state, while a successful financing is a prerequisite for implementing a shantytown reconstruction project. Currently, local governments are in urgent need of financing. Under the traditional mode, local governments mainly finance through bank loans applied for by project-undertaking enterprises. However, issuing of shantytown reconstruction bond will help to further expand capital sources and standardize the social capital’s participation in shantytown reconstruction, thus offering a low-cost capital support to shantytown reconstruction and giving play to the people-benefiting and risk-avoiding functions of special bonds.
The Shanghai Stock Exchange (SSE) has actively implemented arrangements of the MOF and the China Securities Regulatory Commission, assisted Tianjin Municipal Bureau of Finance in promoting the landing of the 1st shantytown reconstruction bond in China, and organized securities companies, accounting firms, law firms and other third-party institutions to offer consultancy on project design and argumentation. In the issuing of the bond, the plan has been designed according to the requirements of relevant documents and the asset income features of the project, and realized a combination of “borrowing, using and returning” and the self-balance of the project revenue and the financing cost of special bond. The successful issuance by tender of the shantytown reconstruction bond is expected to become a segment benchmark and set up an exemplary role for the issuing of follow-up shantytown reconstruction bonds. On the basis of the issuing of the 1st shantytown reconstruction bond, the SSE will coordinate with the MOF and local finance departments to keep facilitating the innovative development of special bonds with a self-balance in project revenue and financing.
Apart from the shantytown reconstruction bond, other bonds were issued by Tianjin Municipality, including general government bond, special government bond and land reserve bond with the scale of RMB7.269 billion, RMB7.08 billion and RMB16.202 billion respectively, and the issuing rates were between 3.56% and 4.29%, respectively. Securities dealers have been active in subscription during the bond issuance, with the total bidding of RMB50.12 billion (1.56 times of the issuing scale), and the bid-winning of RMB1.725 billion (5.38% of the total issuing scale). It showed that the investment and allocation values of local government bonds have been increasingly recognized by securities companies and their clients along with the development of the local government bond market.