Tightened standards to block many LGFVs from selling bonds in Shanghai, Fitch says

“Only a minority of LGFVs that have fundamentally reduced fiscal reliance and transformed their business models to generate sustainable financial returns are likely to issue bonds for financially viable investments,” the rating firm said in a report on Thursday. It did not specify the eligible LGFVs.

Fitch said the stock exchange’s higher standards would not impede LGFVs from refinancing their debts through other means, including access to bank loans to repay older debt or fund new projects.

The Shanghai bourse last month raised the bar for bond issuance, requiring companies to have stronger financials including having sufficient gross income to at least fully cover their interest expense. The yardstick is typically used to assess a company’s financial durability.

Those sales have stoked concerns about the risk of off-balance sheet “hidden debts” in the world’s second-largest economy.