context: As bond issuance under the exchange's scitech bond board has surged since May, LGFVs (local government financing vehicles) and finance leasing firms are now probing whether they can issue scitech bonds to tap low-cost, larger funding to reduce the debt ratio. Yet, from October 2023 to April 2025, only 14 LGFVs issued 40 scitech bonds, raising C¥46.96 bn, versus 1,805 scitech bonds and C¥1.8 tn overall. The following text explores the persistent hurdles for LGFV and lessor entry.
LGFVs (local government financing vehicles) and finance leasing firms are studying peers’ successful cases and current entry barriers to time applications, aiming for sub‑2 percent coupons and larger sizes, reports Economics Observer.
LGFVs aim to swap higher-cost debt and scale up investment in scitech equity and incubator parks and target coupons near 2 percent versus investors asking about 2.5 percent on plain LGFV bonds; leasing firms provide equipment leasing to scitech firms and act as LPs in equity funds, and seek larger, cheaper funds via scitech bonds.
Yet formal hurdles persist; stock exchanges are said not to support LGFVs as scitech bond issuers. Proceeds must fund R&D and tech transfer, but most LGFVs lack in‑house research projects.
Approval risk remains the main bottleneck, not net‑asset size, for LGFVs. Some LGFV‑backed industrial investment companies set up tracking of proceeds to VC/PE and park operations, but still faced denials.
Possible eligibility paths for LGFVs still exist, according to Li Yong 李勇 Soochow Securities fixed income analyst
- meeting ‘3‑3‑5’ thresholds
- construction assets ≤30 percent of total assets
- construction income ≤30 percent of total revenue
- fiscal subsidies ≤50 percent of net profit
- being rated AAA, at or above prefecture level, located in a core city, with lower reliance on local fiscal support
- falling under broadened entry as incubation or investment entities if they run incubator parks or make equity/PE/VC investments
- at least 70 percent of proceeds earmarked to scitech equity, PE/VC commitments or incubator park build‑operate
Leasing firms may apply as ‘scitech upgrading’ issuers if they show real needs to buy research/production kit for lease to scitech clients, says Tao Haojie 陶皓杰 head of funding at a finance leasing firm.
Lessors face both eligibility tests and balance‑sheet caps, according to an insider. There are credit enhancement workarounds, such as exploring guarantees from local government‑backed guarantors plus a national credit enhancement agency to break through caps and draw bank buyers, notes Economics Observer.