China local government finance vehicles issue 1.2 trillion yuan of debt so far in 2016 - report

SHANGHAI (Reuters) - Bond issuance by Chinese local government investment vehicles this year exceeded 1.2 trillion yuan (135.46 billion pounds) as of Sept. 2, more than all of 2015, the Shanghai Securities News reported, citing data from ratings agency China Bond Rating Co., Ltd.

In August, Reuters reported that bond financing by so-called local government financing vehicles (LGFVs), which are used to circumvent limits on direct borrowing by city governments, had reached 740 billion yuan in the first five months of 2016, up 72 percent on the year.

LGFVs play a major role in supporting China’s state sector investment but have also been a source of non-performing debt in the past, raising concerns about risks to its financial system even as the economy shows signs of stabilising.

The issuance figure of 1.2 trillion yuan through early September would imply an increase of 460 billion yuan in the past three months.

Issuance rose as high as 287 billion yuan in March before a sharp bond market correction in April pushed new LGFV bond finance down to just 67 billion yuan in May.

Corporate bond issuance as a whole in China has recovered since the April sell-off, which saw yields rise over 60 basis points for short-term debt and more than $15 billion in new bond financing delayed or cancelled.

But despite a summer market rally which has taken the prices of high-rated corporate debt back near multi-year highs, issuance remains significantly below the March peak.

Net new corporate bond issuance in July was only 219 billion yuan, less than half the March peak of 719 billion yuan.

Reporting By Nathaniel Taplin; Editing by Kim Coghill