China Merchants Securities stick to credit line to beware of risk of city investment

The municipal investment enterprises which belong to the local government have become the important investment and financing platform for the infrastructure construction of the local government, which is the public issue of corporate bonds and medium-term bills. Recently, the 09-Yue Urban construction debt incident caused investors to pay more attention to the risk of city investment. As the rapid development of the "quasi municipal debt" market, there are still some problems in the domestic city investment bond market, such as imperfect credit rating system and the defects in the mode of security enhancement. Based on the experience of the American municipal debt, we think that we should set up a multi-level credit rating framework for the city, and provide reference system for the accurate pricing of the city's investment debt according to the characteristics of the capital use, the source of repayment and the credit risk of the industry.　　For the issue of domestic city investment debt, we should support and encourage the market-oriented credit enhancement mode based on the professional guarantee institution, so as to effectively solve many problems such as the issuer's self-preservation and the mutual insurance of affiliated enterprises. In view of the existing problems in the city's investment bond market, we suggest that investors, when allocating the city's debt, should be rated above AA, and the administrative divisions of the issuing principal should be dominated by municipalities and provincial capitals, and the remaining period should be controlled under 5 years.