THE Shanghai government is planning a 7.1 billion yuan (US$1.1 billion) bond sale as early as November 15, the city's first direct debt offer as part of a national trial, according to a person with direct knowledge of the arrangement.

The sale will be split into three-year and five-year notes, the person said yesterday, declining to be identified. The Bank of Communications Co is among the banks hired to arrange the sale, another source said.

China approved a pilot program last month to allow local governments to directly sell debt amid increasing concerns about the ability of provincial and municipal authorities to repay loans for infrastructure projects. Local governments, previously barred from directly selling bonds or borrowing from banks, set up thousands of financing vehicles and amassed 10.7 trillion yuan in debt by the end of 2010, the National Audit Office said in a June report.

The Ministry of Finance announced on October 20 that the cities of Shanghai and Shenzhen and the provinces of Guangdong and Zhejiang will be allowed to directly sell debt as part of the trial. The ministry previously sold bonds on behalf of local governments. Guangdong plans to sell its first bond by the end of November, its finance department said on October 28.