Securitisation of NPLs bought from Bank of China the first approved by regulator Cinda Asset Management, one of four government firms set up to dispose of China's bad bank loans, has received regulatory approval to arrange the country's first legal securitisation of non-performing assets, sources said yesterday. The non-performing assets, with a face value of 21 billion yuan, are based in Guangdong province and were bought from Bank of China (BOC) in 2004. Cinda will sell three billion yuan worth of bonds based on the bad loans in the interbank market and will hold a further 1.75 billion yuan worth as a subordinated tranche to absorb potential losses. The China Banking Regulatory Commission has approved the securitisation and Cinda is just awaiting clearance from the central bank to begin selling the bonds to banks and other financial institutions, sources said. Cinda was originally given approval to sell up to 3.7 billion yuan of senior bonds in the interbank market. Cinda was established to dispose of the bad assets of China Construction Bank in 1999, along with Oriental Asset Management, which was responsible for Bank of China's bad loans, Great Wall Asset Management, for Agricultural Bank of China's bad debt and Huarong Asset Management for Industrial and Commercial Bank of China's bad assets. The four asset management companies were originally established with a 10-year mandate and are expected to try to repay the full face value of the bad loans before 2009, a task officials admit will be impossible. All four are trying to reinvent themselves as financial services companies and analysts say securitisation projects, which involve selling bonds backed by revenue-generating assets, are mostly about proving to the market they can do it. 'Other markets, such as Korea, have used securitisation as a partial solution to their non-performing loan problems but for the market to really flourish in China the majority of deals will have to come from performing loans,' according to Maria Xuereb, a securitisation expert and partner with Deloitte Touche Tohmatsu. Oriental is expected to be the next asset manager to securitise NPLs in a sale to be based on bad loans with a combined face value of eight billion yuan. 'All of the four managers are preparing their NPL-backed securitised products,' according to Fitch structured finance analyst Jet Zhou. Securitisation is a new phenomenon in China with just three deals, carried out by China Construction Bank and China Development Bank, since it formally began last year. Huarong conducted a successful 1.2 billion yuan pilot securitisation sale in 2003 using bad loans with a face value of 10 billion yuan but at the time there was no legal framework and the industry does not regard it as the first such deal, Mr Zhou said. Fitch expects more than 10 securitisation deals next year with a value of more than 100 billion yuan.