Sub Sovereign Bonds

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  • Topic: Bond, Municipal bond, Bond market
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  • Published : October 9, 2009
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E c o n o m i c

& S o c i a l

DESA Working Paper No. 76 ST/ESA/2009/DWP/76 July 2009

A f f a i r s

Infrastructure finance in developing countries— the potential of sub-sovereign bonds Daniel Platz

Abstract This paper sets out to explore the potential of sub-sovereign bonds in financing infrastructure in developing countries. Taking into account the historical experience of the US, it develops a supply and demand side framework for analysis of the market for sub-sovereign bonded debt in developing countries and applies this framework to Mexico, India and South Africa. Finally, it draws lessons for countries seeking to promote markets for sub-sovereign bonds. Evidence suggests that the regulatory environment, a diversified financial sector and increased capacity for debt support and management matter most for the development of the sub-sovereign bond market. JEL Classification: H74 – State and Local Borrowing, H54 – Infrastructures; Other Public Investment and Capital Stock, H41 – Public Goods, H81 – Governmental Loans, Loan Guarantees, Credits, and Grants Keywords: Sub-sovereign bonds, infrastructure finance, issuers, investors, financial sector, municipal finance

Daniel Platz is an Economic Affairs Officer in the Financing for Development Office of the United Nations Department of Economic and Social Affairs. Comments should be addressed by e-mail to the author: platz@un.org

Contents
Introduction................................................................................................................................. The case for sub-sovereign bonds .................................................................................................. Global perspective on the current market for sub-sovereign bonds ............................................... Supply-side factors in sub-sovereign bond issuances in developing countries ................................ Demand-side factors in sub-sovereign bond issuances in developing countries ............................. Conclusion ................................................................................................................................... Bibliography ................................................................................................................................ Figures 1 2 3 Tables 1 2 3 4 5 6 7 8 Holders of U.S. Municipal Securities.................................................................................. Cumulative Historic Default Rates of municipal and corporate bonds in US ..................... International issuances of sub-sovereign bonds for 1990-1999 and 2000-2007 .................. Municipal bonds in India ................................................................................................... International issuances of sub-sovereign bonds from different income groups..................... Financial sector indicators in India, Mexico and South Africa ............................................ Distribution of savings in India .......................................................................................... Bank concentration in countries with sub-sovereign issuers ................................................ 4 4 6 8 19 20 21 26 Possible structure of a Municipal Development Fund ......................................................... Financial intermediaries by income group .......................................................................... Economies with rated subnational issuers ........................................................................... 17 20 23 1 1 3 8 19 28 30

UN/DESA Working Papers are preliminary documents circulated in a limited number of copies and posted on the DESA website at http://www.un.org/esa/desa/papers to stimulate discussion and critical comment. The views and opinions expressed herein are those of the author and do not necessarily reflect those of the United Nations Secretariat. The designations and terminology employed...
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