China has been an area of constant debate for the securitization industry, mainly because of its size and its growing economic and business potential. There have

been securitization deals from China, says Fitch Ratings, but these have been limited to export receivables securitization since no appropriate legislation is in place. Questions remain with regard to foreclosure and enforceability of bankruptcy laws.

In 1997, China Ocean Shipping Group Company (COSCO) was the first Chinese company to issue asset-backed securities. A second COSCO deal was issued in September 1999, a US$300 million deal backed by future freight receivables generated from different jurisdictions of the container shipping operations in Asia and Europe. This transaction was led by then-Chase Securities.

According to Fitch, "a full-blown securitization market does appear to be some years away." The agency adds that an internationally rated issuance from China is a few years away. Fitch, however, points to two interesting transactions in 2003, which could help pave the way for future securitization developments.

In May 2003 (see ASR 30/6/03), there was a synthetic CDO managed by the Agricultural Bank of China. Many believe that other Chinese banks may be looking to follow in its footsteps, so that more deals in the CDO sector may follow.

In June 2003, Huarang Asset Management Corporation and CITIC (China International Trust and Investment Corporation) completed a non-performing loan transaction, packaging RMB13.25 billion (US$1.6 billion) of distressed loans into a trust. The deal utilized a fairly new Trust Law to create a bankruptcy remote special purpose vehicle. The trust then created a senior beneficial interest in the assets, which were sold to investors.

The international investment banks seem also to be targeting the non-performing loans sector in China. Most recently, an agreement was signed between Credit Suisse First Boston (CSFB) and The Industrial and Commercial Bank of China (ICBC) for a non-performing loan transaction using securitization, in what will most likely be a domestic transaction, expected

early next year. But in the press other international banks such as Morgan Stanley and Deutsche Bank have been linked to non-performing loan deals.

Although the Chinese securitization market is described as "challenging" by market sources, it remains to be seen how quickly deals will come to market. One market participant believes that for deals to get done, bankers need to bring proposals and structures to the regulators, rather than waiting for the domestic regulators to

spur securitization development.

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