TF SECURITIES: 500 billion central enterprise special bonds drive investment, ample space for central enterprises to increase leverage

According to the Zhitong Finance APP, TF Securities released a research report stating that central enterprises leveraging to drive investment and promote economic growth can effectively compensate for the current underinvestment issue caused by local debts. There are a total of 98 central enterprises nationwide, of which 72 have issued bonds at the group level, and 84 have issued bonds within the full scope of the group. There is ample room for central enterprises to leverage. Some subsidiaries of central enterprises have good earnings, and it is recommended to pay close attention; in addition, some central enterprises have issued ultra-long-term credit bonds, which can be considered as an option for extending credit duration, to participate at the right time.

The main points of TF Securities are as follows:

With the approval of the State Council and the arrangement of the State-owned Assets Supervision and Administration Commission, China Reform Holdings Corporation and China Chengtong Holdings Group will issue special bonds for stable growth and investment expansion of 300 billion and 200 billion respectively, with the first phase of 50 billion issued on November 27, attracting market attention.

What is the situation of central enterprises issuing bonds?

There are a total of 98 central enterprises nationwide, of which 72 have issued bonds at the group level, and 84 have issued bonds within the full scope of the group.

① As of the end of November, the outstanding credit bond scale of central enterprises was 19.8 trillion yuan, accounting for 6.84% of the outstanding credit bonds; the outstanding credit bond scale within the full scope of the group was 49.7 trillion yuan, accounting for 17.12% of the outstanding credit bonds.

② From the perspective of primary issuance, central enterprises have good operating conditions and high credit qualifications, with relatively low bond issuance costs. At the same time, with the improvement of the financing environment in the past year, the bond issuance duration of central enterprises has gradually lengthened.

③ In terms of existing bonds, 95% of central enterprise bonds are valued between 1.75% and 2.5%, with the proportion of remaining maturities within 1 year and 1-3 years combined exceeding 80%.

What is the historical situation of central enterprises leveraging?

Historically, the interest-bearing debt of central enterprises shows a certain inverse relationship with GDP growth and social financing growth. In years when social financing growth significantly declines, the debt growth of central enterprises has increased to a certain extent, showing a certain role in stabilizing the economy. In the past two years, the overall growth rate of total assets, total liabilities, and interest-bearing debt of central enterprises has gradually declined, indicating room for increasing debt growth.

This time, the issuance of 500 billion special bonds for stable growth by China Reform and Chengtong is expected to drive the growth rate of interest-bearing liabilities of central enterprises to rebound by 2.5 percentage points if the remaining portion is issued entirely in 2025.

How to view the leveraging of central enterprises?

① Leveraging by central enterprises to drive investment and promote economic growth can effectively compensate for the current underinvestment issue caused by local debts. In addition, leveraging by central enterprises rather than local state-owned enterprises can effectively reduce the accumulation of local debt risks; from the perspective of issuance efficiency, the bond issuance cost for central enterprises is lower; moreover, central enterprises have relatively stronger market-oriented operational capabilities, which is conducive to the development of emerging industries.

② There is ample room for central enterprises to leverage. As of the end of June 2024, the average asset-liability ratio of the 98 central enterprises is around 61.5%. If conservatively set at 60% as the upper limit, the calculated bond issuance space for entities with an asset-liability ratio not reaching 60% totals 5.53 trillion yuan; if set at 65% as the upper limit, the overall debt space is 10.71 trillion yuan.

How to view central enterprise bonds? Some subsidiaries of central enterprises have good earnings, and it is recommended to pay active attention; in addition, some central enterprises have issued ultra-long-term credit bonds, which can be considered as an option for extending credit duration, and participation should be timed.

Risk Warning: Data statistics may have omissions; policies may exceed expectations; credit risk events may exceed expectations