CDB to launch 8b yuan loan-backed securities

PUBLISHED : Wednesday, 06 November, 2013, 4:54am
UPDATED : Thursday, 07 November, 2013, 2:09pm

China Development Bank plans to sell securities backed by an 8 billion yuan (HK$10.1 billion) loan to the state railway operator this month, sources with direct knowledge of the matter said yesterday.

CDB, one of three policy lenders that support government-backed projects, is expected to issue the asset-backed securities (ABS) in the interbank market around November 20. The bond-like securities would mature in June 2017, the sources said.

Beijing announced in August that it would aggressively expand an ABS pilot programme.

Foreign banks have been invited to apply for permission to issue ABS for the first time since the pilot programme was launched in 2005.

Policymakers see securitisation as a tool to shift risk away from the banking system to reduce the chances of a financial crisis as economic growth slows and the level of bad loans rises.

According to the sources, China Credit Rating has given the railway ABS a rating of AAA, based on the credibility of the borrower, China Railway Corp.

Citic Trust would serve as trustee for the ABS, while CDB's brokerage affiliate, China Development Bank Securities, would be the lead underwriter, the sources said.

After Beijing launched the pilot in 2005, about a dozen firms, including CDB, floated a combined 67 billion yuan before the programme was suspended in 2008 due to the global financial crisis.

It was resumed last year, with companies given a total quota of 50 billion yuan. About half of that has been used so far, according to calculations based on official, corporate and media reports.

Market sources said regulators planned to grant quotas totalling 300 billion to 400 billion yuan for companies to sell ABS in coming years, as the government shifted its focus to better allocation of existing credit supply rather than rapid credit growth.

The government has often chosen CDB to take the lead in rolling out innovative financial products. The bank was likely to take up to 100 billion yuan in the new ABS quota mainly to securitise its loans to the railway sector, the sources said.

The mainland's broad M2 money supply topped 100 trillion yuan for the first time in March and reached 107.7 trillion yuan by the end of September, causing widespread worries over excessive supply that could fan inflation, push up already red-hot property prices and spark over-investment.