March 16, 2019 / 9:38 AM / 6 months ago

Ningbo becomes first local govt in China to issue bonds to individuals

SHANGHAI, March 16 (Reuters) - China’s eastern city of Ningbo will become the country’s first municipality to sell bonds to retail investors, as Beijing broadens financing channels for local governments whose fiscal conditions are under pressure from a slowing economy.

The government of Ningbo said over the weekend it plans to issue up to 840 million yuan ($125 million) worth of three-year bonds later this month, including 300 million yuan to be distributed via bank counters, targeting individuals and small institutions.

This would be the first time local government bonds have been sold outside China’s interbank market and stock exchanges, underscoring Beijing’s desire to expand the investor base beyond institutional investors.

The move comes at a time when many local governments are facing increased budgetary pressure amid a slowing economy and the central government is planning more tax cuts. Finance minister Liu Kun said this month that some regions have had difficulties paying salaries, as well as maintaining operations and social security.

Agricultural Bank of China (AgBank), one of the underwriters for the Ningbo bonds, said in an advertisement on its website, that the government bonds will bring “new investment opportunities” to individual investors.

The lender said it is answering the call from the central government and actively preparing for retail distribution so as to help lower financing costs for local governments.

In addition to Ningbo, five other regional, or local governments, including Zhejiang, Sichuan, Shaanxi, Shandong and Beijing will also issue bonds via banks’ counters this month in a pilot scheme, according to AgBank.

Beijing is encouraging local governments to rely on the bond market for funding, while restricting less transparent channels such as local government financing vehicles (LGFVs) in an effort to prevent a credit crisis.

The Finance Ministry said during this month’s parliamentary meeting that it will grant local governments a quota of 2.15 trillion yuan for special bond issuance this year, sharply higher than the 1.35 trillion yuan quota it granted in 2018. Special bonds are issued for purposes such as highway projects and shanty town redevelopment.

The Ningbo bonds, to be issued on March 22 by tender, are special bonds used to fund the purchase of land reserves, according to the prospectus, posted on the website of the Interbank market. ($1 = 6.7129 Chinese yuan renminbi) (Reporting by Samuel Shen and Josh Horwitz; editing by Richard Pullin)

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