February 12, 2018 / 8:36 AM / 7 days ago

China says firms issuing debt cannot accept guarantees from local govts

BEIJING, Feb 12 (Reuters) - Chinese companies issuing bonds must not request or accept any type of guarantees from local governments for debt financing, the country’s top state planner said on Monday, in a notice detailing new rules for corporate bond issuance.

The new rules are the latest in a series of tough measures taken by Beijing to reduce systemic risks in the world’s second-largest economy.

Bond issues must publicly state that debt raised does not add to local government debt and that they are not serving any government financing functions, said the notice from the National Development and Reform Commission.

Chinese authorities are working to separate local governments from financing activities of often closely associated but technically independent companies.

Beijing says the government is not responsible for debt raised by these firms but it is still widely assumed that the government would step in to provide support in the event these firms faced repayment issues.

China’s outstanding local government debt rose 7.5 percent to 16.47 trillion yuan ($2.56 trillion) at the end of 2017 from the previous year, according to Reuters calculations, but remained within the government’s target. (Reporting by Beijing Monitoring Desk; Writing by Elias Glenn; Editing by Kim Coghill)

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