Asian ABS professionals, particularly those at Lehman Brothers and Standard Chartered, received an early Christmas present when Chinese authorities lifted the one remaining tax hurdle causing delays to the pilot securitization schemes by China Construction Bank and China Development Bank.
Although both banks had received initial approval in March for up to RMB10 billion (US$1.23 billion) of issuance (ASR, 4/11/05), neither deal made economic sense while China's laws meant both the originator and special purpose trust would be subject to income tax on the underlying assets.
Most observers believed the double taxation' ruling would be resolved in 2006, but a banker involved in one of the deals said the restriction was lifted last week. As the prep work for CCB's RMBS, arranged by StanChart, and CDB's RMB4.3 billion ($527 million) infrastructure loans CLO, structured by Lehman, was completed months ago, both banks moved quickly on the favorable news.
CCB held roadshows in Beijing and Shanghai last week, ahead of launch scheduled for some time this week. With markets in the People's Republic not closing over the Christmas period, a source said he was confident the deal would close this month.
CDB, meanwhile, met 300 institutional investors in September to discuss the technical aspects of its two-year transaction, backed by 62 corporate loans to 32 obligors. The bank is also expected to launch this week with a view to close in 2005.
The paper on both deals will be placed on the Interbank market with placement handed by domestic securities firms. The source declined to speculate on potential pricing, but anything offering a decent premium to government bonds should guarantee huge interest among China's product-starved institutional investors. It is rumored CDB will offer a weighted average interest of 5.14% on its three tranches; a significant pick-up on two-year government bonds, currently yielding 1.2%.
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