China's top planning agency has issued stricter rules for approval of bond sales by local government financing vehicles, people familiar with the matter said.

The National Development and Reform Commission, which oversees note sales by unlisted companies, won't accept applications for issuance from units in regions whose outstanding LGFV debt exceeds 8 percent of annual economic output, the people said.

They asked not to be identified because the new regulations have not been made public.

The move would limit LGFVs' refinancing as they face a record 486.9 billion yuan ($79.5 billion) of bonds due next year. China announced plans on Oct 2 to ban local authorities from additional borrowing through the units as Premier Li Keqiang steps up efforts to control financial risks.

Most debentures regulated by the NDRC are LGFV bonds, according to Ping An Securities Co, a unit of the nation's second-biggest insurance company.

"The NDRC is probably trying to curb LGFV bond sales before the new rules banning them take effect," said Shi Lei, head of fixed-income research at Ping An Securities. "Because some LGFVs in highly leveraged regions may no longer get approval to sell bonds, default risks in their borrowings, especially trust products and accounts payable, will probably rise."

A call to the NDRC's news department went unanswered on Thursday and there was no immediate response to faxed requests for comment.

The local government in whose jurisdiction a vehicle is located must not have debt exceeding 100 percent of its fiscal revenue, the people said.

The NDRC also will not accept application for any kind of corporate bond sales if the company's debt-to-asset ratio exceeds 85 percent, they said.

Credit concerns are escalating as property prices fall, State banks increase bad loan provisions and at least 10 trusts have been struggling to meet payments since May.

Shanghai Chaori Solar Energy Science & Technology Co marked China's first onshore corporate bond default in March when it missed a coupon payment.

Local governments have used more than 10,000 financing vehicles to sell notes after they were barred from directly issuing bonds under the 1994 budget law. The nation's legislature passed amendments to the budget law at the end of August that lay the legal framework for allowing local governments to raise funds by directly selling notes.

Local government debt swelled 67 percent from the end of 2010 to 17.9 trillion yuan as of June 30 last year, according to the National Audit Office. Almost 40 percent of the liabilities came from off-budget funding through financing vehicles, the auditor said in December.

The NDRC had suspended approvals this week for the sale of corporate notes, according to separate people familiar with the matter. A brokerage employee who attempted to submit a bond sale application with the commission this week, said that an official told him the agency was only looking at documents and not formally accepting the requests pending additional requirements for documentation.

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