China has just seen the release of its first public-private partnership asset-backed financial product on the country’s interbank market.
According to the Beijing Daily China Fortune Land Development issued its Gu’an New Model Urbanisation public-private partnership asset-backed note (PPP-ABN) on 11 August, marking the first time that a financial product of its type has made its appearance on the Chinese interbank market.
In addition to being the first PPP-ABN to hit China’s interbank market, the CLFD Note is also the country’s first “industrial park municipal services category PPP asset-securitised project.”
China Fortune Land Development Property Services Co., Ltd. (幸福基业物业服务有限公司) was the issuing entity for the CLFD PPP-ABN, while China CITIC Bank and CITIC Securities served jointly as lead underwriters.
The PPP-ABN issued were for a total sum of 200 million yuan, backed by the ownership rights to property management revenues from the Gu’an New Model Urbanisation PPP project.
The notes were divided into two tranches of senior notes and one tranche of subordinated notes, for maturities of 1 and 2 years. Both tranche of senior notes enjoy an AAA rating and provide a yield of 4.8%, which is lower than comparable yields on the market for the same maturities, and a sign that investors have strong confidence in the quality of the underlying assets.
In December last year China’s National Association of Financial Market Institutional Investors released its “Non-Financial Enterprise Asset-backed Note Guidance (Amended Draft)” as well as accompanying information, as part of efforts to improve the quality and efficiency of the ABN system and registration mechanisms.
Following over six months of development the underlying assets for ABN have expanded to encompass a broad range of assets, including creditors rights to rent, accounts receivable, consumer finance, trade finance and PPP income rights, as well as assumed a range of experimental transaction structures including dynamic pools, simulated pools, one-time registrations and serial issuance.
According to official data over 100 million yuan in ABN have been registered, of which nearly 60 billion yuan have been issued.
Regulators hope that the use of ABN for PPP projects will help to provide an “outstanding development environment” for the financing of infrastructure projects and the reduction of capital costs, as well as raise the participation of private capital in PPP undertakings by providing more standardised and transparent procedures.
They also hope that this will abet China’s overall deleveraging campaign, while expediting the channeling of funds from capital markets to urbanisation and urban development undertakings.
NAFMII says that it will “continually innovate service methods and on the foundation of PPP-ABN’s expand the use of innovative products such as notes and bond-loan-fund combinations to support PPP projects,” as well as “provide innovation impetus and operate an outstanding environment for the development of PPP’s, and continually promote the healthy and stable development of PPP project securitisation.”