Fitch: Local Governments' Recourse to Capital Markets Growing
OREANDA-NEWS. Fitch Ratings says in a comment that local governments' recourse to capital markets is growing, with Chinese local governments being the largest subnational bond issuers by country in 2015 with the equivalent of nearly USD600bn, exceeding the US whose issuance has hovered at around UDS400bn since 2005. According to a Fitch survey, bond and other debt liabilities of local authorities in the dozen largest countries topped USD10trn in 2015, or 20% of GDP.
Fitch expects Chinese local authorities to continue to issue at around USD500bn-600bn per annum over 2016-2018, up from an average of USD50bn in 2012-2014. This will be supported by a national government-sponsored programme to refinance the equivalent of the nearly USD2,500bn loans issued by funding vehicles of provincial and municipal authorities with cheaper and long-dated bonds.
Growing bond borrowing in China will raise annual issuance by sub-nationals in major countries to close to USD1,300bn in 2016 and thereafter, from about USD500bn in 2011. Other large issuers include Germany (USD60bn), Japan and Canada with about USD50bn each, and Australia with USD40bn. The market outside the US is gaining depth with the number of issuers edging towards 500 and nearly 2,000 transactions while transactions in the US is just below 15,000.
The inclusion of subnational bonds by the European Central Bank in its asset purchase programme may eventually spur issuance in western Europe where bond borrowing has subsided amid austerity and economic slowdown. Low rates, potential tighter bank lending due to tougher capital requirements and separate treatment of sub-nationals within prudential regulation of banks' sovereign exposures may further induce increased bond issuance by sub-nationals. Issuance in Spain and France together contracted to around USD5bn in 2015 from about USD15bn in 2011-12, less than the combined volumes in Sweden and Switzerland.