While the eagerly anticipated explosion of issuance from the People’s Republic of China (PRC) remains on hold due to the country’s cautious regulatory procedures, one senior regulator last week raised hopes that may be set to change.
Talking to the media at a Beijing conference, Li Fuan, product director at the China Banking Regulatory Commission (CBRC), said he expected issuance of around Rmb60 billion ($7.6 billion) over the next 12 months.
This would indicate CBRC – which, with the People’s Bank of China, regulates issuance by financial institutions – is preparing to do away with the laborious approval process once the next batch of pilot ABS schemes has been completed.
China Construction Bank (CCB) and China Development Bank were the first pilot issuers in December 2005, respectively selling an MBS and a CLO (ASR, 1/9/06).
Fuan added credence to the belief that the second phase of pilot deals will focus on nonperforming loan ABS; confirming Cinda Asset Management Co. and Orient AMC were among the institutions being considered.
The two AMCs, with Great Wall AMC and Huarong AMC, were established in 1999 to rid China’s financial system of NPLs. Although the AMCs have been successful in resolving or selling a significant portion of bad loans to private investors, securitization is seen as a further tool in the resolution effort.
CCB is seeking approval for a second securitization. The bank has begun preparatory work for the deal – possibly backed by consumer loans – and has slated launch for early 2007.
Staying in China, property developer Jin Mao Group is making plans to launch the PRC’s first domestic CMBS. Macquarie Wanda Real Estate Fund completed earlier this month the first offshore CMBS involving Chinese properties (ASR, 10/23/06).
Jin Mao has hired Shanghai firm Haitong Securities to arrange a five-year deal, which will be backed by rental income from its property portfolio. That includes Jin Mao Tower in Shanghai, the tallest building in Mainland China.
Should the China Securities Regulatory Commission – overseer of corporate issuance – give the green light, it could pave the way for other developers to sell similar transactions.
CMBS is viewed by many as a potentially active asset class in China, enabling developers to free up capital for new projects. Additionally, spreads on corporate ABS deals are significantly cheaper than bank loans, which developers are currently dependent on for financing.
Investors would also be attracted to the asset class, with rental income in China’s commercial property sector growing rapidly. According to Jones Lang LaSalle, high demand for office space will cause rental income to rise by 27% over the next two years.
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