China's central bank, the People's Bank of China, recently announced that it has given permission to the China Construction Bank to start offering mortgage-backed securities. The move caused a flurry of publicity in international newspapers and capital markets publications, with the Financial Times quoting Li Zibin, the mayor of Shenzhen, one of the two cities chosen to pilot the securities, saying that a deal would be launched "very soon or, at the latest, by the end of the year."
The deal in question is linked to a project between CCB and Macquarie Bank, an Australian mortgage bank with significant securitization expertise, which has seen Macquarie advising CCB on originating mortgages with a view to securitization some time in the future.
Andrew Bruce, managing director of Macquarie in Hong Kong, declined to comment on the reports, but other securitization pros, with knowledge of the project and experience of working in China, warned that any deal is likely to be some way off - if it ever sees the light of day.
While the CCB has been advancing mortgages for some time, it is not clear how many of these mortgages securitizable.
One expert with knowledge of the project between Macquarie and CCB, said it was along way from a MBS deal. "They are still at phase one, which is actually getting the origination process fully up and running and creating something that could actually be securitized," he said.
Pros also pointed to the many significant problems that stand in the way of any securitization in China. International deals are effectively ruled out by the partial convertibility of the renminbi, particularly given the terrible history of internationally placed project financings backed by renminbi toll road revenues, most if not all of which are worth considerably less than their launch price.
Even for domestic MBS, appetite for which is at best uncertain, there are many problems that could scupper a deal, starting with the difficulty of creating a security interest in a mortgage and being certain that the courts will enforce it in the event of a default.