Momentum continues building in China's ABS market after news emerged last week that China Development Bank has met with investors to educate them on the technical aspects of its Rmb5.3 billion ($654 million) infrastructure loan ABS. China Development, working with Lehman Brothers, and China Construction Bank were earlier this year given the green light to work on pilot securitization programs by the State Council, the legislative body responsible for the day-to-day running of the People's Republic.
China Development held a preliminary roadshow in Shanghai for its two-year transaction, which will securitize 62 corporate loans spread across 12 industries, including telecommunications, power and construction. The three-tranche deal will be rated by the China Chengxin Rating Agency, with Fitch Ratings also on board to oversee the credit worthiness of the deal.
Lehman would not comment on a timeframe for launch. However, with regulatory approval secured, and huge investor interest certain, there should be no impediment to China Development launching shortly. China Construction is also expected to launch its Rmb10 billion MBS via Standard Chartered in October.
Over 300 investors, including insurance companies, fund managers and banks, turned up for the roadshow. While their knowledge of securitized products is limited, the range of investment options available to institutional buyers is thin.
The bond market currently accounts for just 1% of financing for Chinese companies. The Shanghai Stock Exchange, where bonds are traded, lists only seven new deals issued by financial institutions and corporates this year, amounting to a paltry Rmb6.735 billion of issuance. With two-year government bonds currently trading at 1.46%, and low returns available on local stock markets, should China Development open books at 5%, investors are expected to be keen to embrace securitizations.
The China Regulatory Securities Commission predicts that ABS issuance could top Rmb200 billion within the next two years.
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