IFR Asia China Securitisation Roundtable 2017: New models emerge

The opening of China’s domestic bond market is the single biggest opportunity in the global fixed income arena today, and securitisation is likely to be among the biggest beneficiaries.

Securitisation is emerging as one of the most promising asset classes in China. The country’s banks need to recycle capital more quickly and shift assets off their balance sheets, while asset owners are stepping up their search for alternative forms of funding.

Add to that the arrival of foreign investors following the liberalisation of quotas last year, and the potential becomes even more compelling. International reserve managers and conservative funds are looking to increase their exposure to renminbi assets, and Triple A rated asset-backed securities will be high on the list.

Panellists at IFR Asia’s China Securitisation Roundtable in December painted an encouraging picture for this developing market.

While securitisation in the domestic market is very different from elsewhere – there is no dedicated law on asset-backed securities, for instance – the influence of international participants has been instrumental.

Global auto finance companies have been among the biggest users of renminbi securitisation, with the likes of Volkswagen drawing heavily from their international experience for local funding.

International underwriters, with decades more structuring experience, have won a meaningful share of the onshore market. Overseas lawyers and other consultants have followed. International rating agencies, too, have been heavily involved in developing new structures and monitoring existing transactions.

It’s clear that China is embracing securitisation as a way of spreading the financing burden beyond its bloated banking system. It’s also evident from recent deals that international best practices do have a role to play in the mainland market. That approach points to a bright future as China opens up.