Car finance firm to sell securities backed by assets

PUBLISHED : Monday, 05 March, 2012, 12:00am
UPDATED : Monday, 05 March, 2012, 12:00am


GMAC-SAIC Automotive Finance, the financing arm of General Motor's joint venture with Shanghai Automotive Industry Corporation, is set to issue a securities product backed by car loans.

The issue is set to be launched within the first half of this year and is a sign that Beijing is pressing ahead with developing an asset-backed securities (ABS) market after a three-year hiatus, analysts say.

The car financing firm will launch 2 billion yuan (HK$2.5 billion) worth of the car loans-backed product, four years after it issued a similar Tong Yuan securities product in January 2008, say two people involved in the deal.

The move is in line with Beijing's plan to reinvigorate the ABS market to help banking and non-banking financial institutions hedge against defaults while raising fresh funds, according to them.

'The banking regulator has given the green light to the redevelopment of the ABS market and the car loans product is part of the plan carried out under the regulator's directives,' said one of them.

'It has been fully prepared and an imminent launch is expected.'

ABS products are created through a securitisation process, under which underlying assets are pooled and turned into financial instruments that can be sold to general investors. The issuers raise funds from selling the ABS products.

Beijing began a pilot ABS programme in 2005 when it allowed China Construction Bank and China Development Bank to issue ABS products.

Under the scheme, each product was subject to getting approval from the China Banking Regulatory Commission (CBRC).

ABS products were valued at 67 billion yuan at the end of 2008, according to the official China Securities Journal.

Analysts had expected the market to hit 100 billion yuan as Beijing expanded the trial programme, but the CBRC halted approvals in 2009 to avoid a repeat of the US subprime woes.

Top banking regulators said last year that Beijing was considering approving an additional 50 billion yuan in ABS products, creating a new source of financing for banks and other non-banking institutions.

Until now, most of the mainland's ABS products were backed by mortgage loans and loans extended to major state-owned firms.

In the new round of ABS sales, products aimed at helping banks reduce their exposure to loans extended to local government financing vehicles and loans to small firms would be launched, the insiders said.

The proceeds from the sales could also boost the capital of mainland lenders.

GMAC-SAIC, established in 2004, was the first car financing firm on the mainland.