The China Construction Bank privatization project, recently approved by the Chinese government, may become the first true loan securitization in China. As the sole advisor, Standard Chartered gains both experience and credibility in the marketplace, building on an existing track record in the country.
Headed by Warren Lee, the Standard Chartered team working on the China Construction Bank project consists of six members, three of whom - Lesi Zuo, Li Zhang and Eric Jiang - are responsible for the pilot MBS project.
According to Lee, China's State Council is supporting moves towards asset securitization and, as a result, more banks are placing trust in the securitization of their mortgage loans and other assets to help enhance liquidity. This also provides leadership and product innovation to the burgeoning Chinese financial market, he said.
Another executive at the bank, who requested to not be named, said Lee's team came over from Bank of America in 2002, where the asset securitization group had been ranked in the top two in Asia.
There are two asset securitization groups at Standard Chartered, he said. One, based in Hong Kong, is in charge of all of Asia except for Japan. The other, based in London, handles the rest of the world.
He explained that most asset securitization experts in Asia come from the U.S., Europe or Korea, because those securitization markets are the most advanced. There are still very few investment bankers with experience in mainland China, he said. The Standard Chartered team stands out in this regard.
"We have significant transaction experience in ABS in China, deep relationships with local regulators and abundant knowledge of the domestic investors," said Warren Lee, head of asset securitization at Standard Chartered. "All of these help us win a strong reputation for this business."
According to Lee, the bank has established a track record in pioneering high profile cross-border asset-backed securitization projects in China such as for China International Marine Containers in 2000 and China Ocean Shipping Co. the following year. "Both of them are definitely genuine ABS deals conforming to international standards," he added.
China International Marine Containers president Boliang Mai said that the receivables securitization deal helped the firm attain the goals of lowering its debt ratio while at the same time speeding up asset receivables turnover.
"With the help of the deal, we successfully withdrew capital totaling $80 million at a time," he said. "This is the amount that should have been back in 38 days on average."
This was the first domestic receivables securitization deal, according to Standard Chartered.
Shortly thereafter, the COSCO deal followed, taking three months to complete. In that project, the securities were backed by freight receivables.
"Through these deals, we've built up a solid network with other domestic transaction service providers," added StanChart's Lee. "They include lawyers, trust companies and rating agencies."
Current partners in the MBS project with China Construction Bank include law firm King & Wood, the CITIC Trust & Investment Co. and China Credit Rating. Foreign partners include Freshfields Bruckhaus Deringer, Deloitte, KPMG and Moody's Investors Service.
Like other players involved in the Chinese securitization space, StanChart is optimistic about the possibilities.
"Looking to the future, we do not anticipate hurdles, only opportunities," said Lesi Zuo, director of asset-backed securitization at the bank. That doesn't mean that there haven't been problems in the past, he added.
According to Zuo, the lack of a "securitization-friendly" legal and regulatory framework was one of the major reasons why there have been no true securitization transactions completed in China in the past.
"The government's recent effort has resulted in the promulgation of a number of provisional rules governing securitization," Zuo said. "In our view, it not only makes the pilot transactions feasible but also kicks off the development of securitization markets in China."
China Standard is an active promoter of securitization in China and has been invited by the State Council to meetings related to making securitization laws, he added. As a result of these meetings, the bank can tell that the government is taking reforms seriously.
"We witnessed the government's strong effort in the past few years," Zuo said. "China's economic growth means a huge demand for securitization as an important tool for financing and risk management. Therefore, we firmly believe that China, in time, will become one of the largest ABS markets in Asia."
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