3 examples of successful asset securitization?

Asset securitization is a form of financing that issues tradable securities backed by a specific portfolio of assets or a specific cash flow. Here are my examples of successful asset securitization for you to read!

Introduction of asset securitization:

Asset securitization is a form of financing that issues tradable securities backed by a specific portfolio of assets or specific cash flows. While traditional securities offerings are corporate-based, asset securitization issues securities based on a specific pool of assets.

Securities issued in the asset securitization process that are based on a pool of assets are called securitized products.

Asset securitization***asset-backed securitization*** is the act of converting an illiquid asset into a security that can be freely traded in the financial markets to make it liquid.

Asset refers to anything owned by any company, organization and individual that has commercial or exchange value. There are many classifications of assets such as current assets, fixed assets, tangible assets, intangible assets, real estate, etc. [3]

Broad Definition

Asset Securitization Broadly speaking, asset securitization refers to the way of asset operation in which an asset or a combination of assets adopts the value form of a security asset, which includes the following four categories:

1. Securitization of Physical Assets: i.e., the conversion of physical assets to security assets, the process of issuing securities and listing them on the basis of physical assets and intangible assets.

2, credit asset securitization: is a group of illiquid credit assets, such as bank loans, corporate accounts receivable, after restructuring to form a pool of assets, so that the cash flow generated by this group of assets is more stable and is expected to remain stable in the future, with the corresponding credit guarantee, based on which this group of assets generated by the right to income of the future cash flow into the financial market, liquid, credit rating is higher. The process of transforming the right to receive future cash flows from these assets into a bond-type security that can flow in the financial market and has a high credit rating for issuance.

3, securities asset securitization: that is, the process of re-securitization of securities assets, that is, the securities or portfolio of securities as the underlying assets, and then issued securities based on the cash flows generated by them or cash flow-related variables.

4. Securitization of cash assets: is the process by which holders of cash convert it into securities through investment.

Narrow definition

Asset securitization in the narrow sense refers to credit asset securitization. Depending on the type of asset being securitized, credit asset securitization can be divided into home mortgage-backed securitization ***Mortgage-Backed Securitization, MBS *** and asset-backed securitization ***Asset-Backed Securitization, ABS ***.

Examples of Successful Asset Securitization 1:

Currently, China has carried out some exploration in the field of commercial real estate ***Topic Reading*** Asset Securitization ***Topic Reading***. Among the existing cases, they can be roughly divided into three categories:

One is standard REITs, such as Kaiyuan REITs and Spring Spring REITs, which are both listed in Hong Kong;

Two is quasi-REITs, represented by CITIC Qixing special asset management plan and Gaohe Capital's case of Zhonghua Enterprise Building;

Third is other asset securitization in the form of special asset management plans. Asset securitization, such as Happy Valley theme park entry voucher income special asset management plan, Haiyin shares special asset management plan. For example, Kaiyuan REITs and Spring Spring REITs, with domestic hotels and office buildings as the underlying assets, are packaged and listed in Hong Kong through REITs.

Kaoyuan REITs. listed in Hong Kong in July 2013, the underlying assets for Zhejiang Kaiyuan Group's four five-star hotels and one four-star hotel. The actual issue of 25% of the fund share, the issue price of 3. 5 Hong Kong dollars, to raise funds of 6. 75 billion Hong Kong dollars, the expected rate of return of 7. 8%, guaranteed by the Kaiyuan Group, and if it fails to meet the expected rate of return, it will be made up by the Kaiyuan Group. From the structure of the investors, the proportion of public holders is 32. 42%, Carlyle 28. 39%, Ho Fung International 39. 20%.

Spring REITs. was offered in Hong Kong in November 2013, managed by Spring Spring Asset Management Limited, with the underlying assets being two office towers and underground parking spaces in Beijing's China Central Place, and priced at HK$3. 81 per unit of fund share, raising HK$1. 674 billion, with a projected annualized rate of return of 4. 94% to 5. 23%.

2, quasi-REITs

Typical cases include the case of China Enterprises Tower of High and Capital and CITIC Qihang Capital Management Plan, which has been presented in part of the operational aspects of the approach has been very close to private REITs.

The case of China Enterprises Building by C&C Capital. China Enterprise Tower is an old office building located on West Nanjing Road in Shanghai, and GH Capital raised funds from high net worth individuals in a non-public manner, with a threshold of 30 million RMB or more, while also utilizing a high degree of financial leverage. The total investment in China Enterprise Tower amounted to approximately RMB 900 million, with a funding structure of 3:2:1, i.e. 3 refers to bank M&A loans, 2 refers to mezzanine financing from a trust company, and 1 refers to subordinated grade held by Gaohe. Acquisition of China Enterprise Building after the overall transformation, elimination of tenants, improve the quality, and the introduction of international property management companies, the project into a rare boutique office building on West Nanjing Road.

Due to the delay in the launch of REITs in China, how to strike a balance between the liquidity of the property and the integrity of the overall value of the property is a major challenge for the commercial real estate industry. GH Capital ensures the integrity of the property's own operations and management through in-depth asset management*** including setting investor thresholds, unified property management, unified leasing, liquidity support, and a series of asset management services*** for up to 10 years. At the same time, through the sale of the entire floor to private investors so that property rights can be free flow. In this way, on the one hand, the exit of the fund is guaranteed, and on the other hand, the integrity and quality of the property operation is maintained. This kind of exploration is actually a kind of private REITs arrangement, which is a useful exploration in the direction of standard REITs.

CITIC Qihang Special Asset Management Plan: In January 2014, CITIC Qihang Special Asset Management Plan was set up, managed by CITIC Jinshi Fund Management Co., Ltd. with the underlying assets of the 2nd-22nd floors of the CITIC Securities Building in Beijing and the 4th-22nd floors of the CITIC Securities Building in Shenzhen, as well as corresponding land-use rights. The fundraising scale is RMB 5.21 billion, of which RMB 3.65 billion is for the preferred share and RMB 1.56 billion for the subordinated share, with a ratio of 7:3. The preferred share receives the base income during the duration of the fund, and 10% of the capital appreciation upon exit; the subordinated share receives the residual income after meeting the base income of the preferred share during the duration of the fund, and 90% of the capital appreciation upon exit. The preferred order is rated AAA, the term is not more than 5 years, and the investors are all institutional investors. The CITIC Qihang special asset management plan has achieved a very important breakthrough in liquidity enhancement by being listed and traded on the Shenzhen Stock Exchange system.

3, special asset management plan

At present, the special asset management plan is a feasible way to realize the securitization of corporate assets. Such as Happy Valley theme park entry vouchers income special asset management plan, Haiyin shares special asset management plan.

Pleasant Valley theme park into the park vouchers special management plan. 2012 November, Happy Valley theme park into the park vouchers special management plan issued, the management of CITIC Securities, the total size of the fund-raising 1.85 billion yuan, of which the priority order of beneficiary vouchers size of 1.75 billion yuan, the credit rating of AAA; secondary beneficiary vouchers size of 100 million yuan, by OCTA subscribed to all, the term of not more than 5 years. The term will not exceed 5 years. OCTA's parent company, OCT Group, provided an irrevocable joint and several liability guarantee for the management plan.

Haiyin's special asset management plan: In August 2014, Guangdong Haiyin Group set up a special asset management plan to raise a total of 1.5 billion yuan with its 15 commercial properties' operating income rights as the underlying assets. Among them, 1.4 billion yuan of preferred order asset-backed securities were subscribed by eligible institutional investors; 100 million yuan of subordinated asset-backed securities were fully subscribed by the Company on behalf of the original equity holders. Haiyin Group guarantees the asset management plan, if the future cash flow of the underlying assets is insufficient to repay the principal and expected returns, the difference will be made up by Haiyin Group. in September 2014, Haiyin shares special asset management plan in the Shenzhen Stock Exchange listed trading.

Example 2 of successful asset securitization:

The construction of the Guangzhou-Shenzhen-Zhuhai*** Guangzhou-Shenzhen-Zhuhai*** Expressway is a product of cooperation between Hehe Holdings Ltd. and the Guangdong Provincial Department of Transportation. In order to raise funds for the construction of the Guangzhou-Shenzhen-Zhuhai Expressway, the developer of the project, Hong Kong and Hutchison Holdings Limited, set up the Guangzhou-Shenzhen Expressway Holding Company Limited in the British Virgin Islands through Delta Highways Limited registered in the Cayman Islands, and backed up by the concessionary highway tolling rights, which issued US$600 million of bonds in the international capital market to raise funds for the Guangzhou-Shenzhen-Zhuhai The construction of the Eastern Section of Guangzhou-Shenzhen-Zhuhai Expressway project. Wo Hop holds a 50% equity interest in the Guangzhou-Shenzhen-Zhuhai Expressway and ultimately holds a 30-year concession for the Eastern Section of the Guangzhou-Shenzhen-Zhuhai Expressway until 2027. At the end of the concession, all assets are unconditionally transferred to Guangdong Province ***.

By nature, the Guangzhou-Shenzhen-Zhuhai Expressway's dedicated asset securitization financing belongs to the offshore *** Cross-border *** Asset Securitization *** Cross-borderSecuritization*** financing model. Offshore asset securitization refers to the cross-border asset securitization execution mode, and it is generally considered that the way of financing to foreign investors by way of asset securitization in the international market by domestic financiers through SPVs in foreign countries is offshore asset securitization. Some scholars have pointed out that the "infrastructure fee model" + "offshore model" can be used as one of the breakthrough models for asset securitization in China.

***The advantages of offshore asset securitization project financing

1. From the perspective of securitization products, offshore asset securitization project financing has the following advantages:***1*** The securitization of infrastructure charges meets the requirements of asset securitization project financing products, and the project's future cash flow is relatively stable and reliable, easy to calculate, and meets the requirements of issuing securities backed by predictable future cash flow. The securitization of infrastructure fees meets the requirements of an asset securitization project financing product, as the project's future cash flows are stable and reliable, easy to calculate, and satisfy the requirements of issuing securities backed by predictable future cash flows as well as the principle of "asset reorganization. ***2*** In this institution, the original owner transfers the right to the proceeds of the project to the SPV, thus realizing the key step of securitization - insolvency isolation. ***3*** Internal credit enhancement is achieved by bond layering and external credit enhancement is achieved by means of guarantees. The credit enhancement technique reduces the cost of funding in the international capital markets.

2. Compared with other types of ad hoc financing methods, offshore asset securitization financing has strong advantages:***1*** It can effectively overcome the pressure of foreign debt and industrial security problems brought about by the traditional introduction of foreign capital such as borrowing foreign loans and absorbing foreign direct investment. ***2*** Due to the credit enhancement measures, the cost can be reduced when the increase is raised on a large scale in the capital market. ***3*** Offshore asset securitization financing is applicable to both completed and under-construction projects, regardless of the limitations of the project, in this process of offshore asset securitization financing *** country *** always retain ownership of the project.

3. From the point of view of the geographical distribution of trading institutions, offshore securitization financing also has its inherent advantages:***1*** Offshore securitization financing can meet the legal requirements of the country that supports the bond issuance, to avoid the uncertainty of the relevant system in our country, and to ensure the successful completion of the securitization financing. ***2*** The market capacity faced when issuing securities in **** is large, with relatively more institutional investors.

4. From the financing point of view: ***1*** offshore asset securitization financing and other forms of ad hoc financing than a great advantage, it can effectively overcome the borrowing of foreign loans and the absorption of foreign direct investment and other traditional introduction of foreign capital brought about by the pressure of foreign debt and industrial security issues; ***2*** due to the credit enhancement measures, when in the capital market when the large-scale capital raising, the cost of financing can be reduced. , financing costs can be reduced.

5. Other. Offshore asset securitization financing is applicable to both completed infrastructure projects and projects under construction, and is not subject to the limitations of the project

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;Throughout the entire process of offshore asset securitization financing *** State **** always keeps the ownership of the special case.

***Three*** shortcomings of offshore asset securitization 1. foreign exchange controls and exchange rate fluctuations. The biggest obstacle to offshore asset securitization is the foreign exchange management system, because through the "offshore asset securitization model" to raise foreign exchange, debt service must also be foreign exchange, but the cash flow of the asset is RMB, and China has not yet implemented the free exchange of capital projects, how to change the cash flow from RMB to foreign exchange into a big obstacle.

At the same time, offshore asset securitization for project financing necessarily involves the transfer of assets as security for securities to the SPV set up in ***, and these assets are often the revenue rights or accounts receivable of completed projects. As China's current relevant regulations ***such as the People's Bank of China's "Administrative Measures for Domestic Institutions Borrowing International Commercial Loans" ***include transactions similar to asset securitization in the scope of foreign debt management, the financing scale of offshore asset securitization project financing must be included in the country's guiding plan, and the financing terms are subject to the approval or audit of the State Administration of Foreign Exchange (SAFE).

In addition, the stability of foreign exchange cash flow is also affected by changes in exchange rates.

2. Since the main programs of asset securitization are operated overseas and the investors are overseas, it is difficult to play a greater role in promoting and testing the development of securitization in China.

2. The useful attempts of financial institutions to dispose of credit assets in a trust manner - Huarong Asset Management Company's special case analysis of asset disposal trust.

In June 2003, China Huarong Asset Management Company and CITIC Trust signed the "Property Entrustment Contract" and "Trust Property Entrustment Disposal Agreement", which will be 132. 500 million yuan of non-performing debt assets, entrusted to the CITIC Trust and Investment Company to set up a three-year property trust, and will be one of the first order of priority of the beneficiary rights transferred to investors. This is the first asset disposal method in China - Huarong Asset Disposal Trust Project, which is regarded as "an important step in the direction of asset securitization". *** For more information, see Wang Xiaobo, Wang Haibo, and Liu Berong, "A Bold Experiment in Securitization of Non-Performing Assets," in Financial Times, September 12, 2003, page 6, Financial Times. ***

The Huarong Asset Disposal Trust case makes full use of the operation platform provided by the trust system, which is a major innovation in asset disposal. This asset-based investment contract transaction mode not only provides a useful exploration for financial asset management companies and state-owned commercial banks to speed up the disposal of non-performing assets, but also has a certain reference value of the transaction structure for the financing of the infrastructure project. In addition, commercial banks can also make full use of this trust project model to manage their project loans, diversify and control the risk of the project loans.

According to the public disclosure of Huarong Asset Management Company, Huarong Asset Disposal Trust transaction is a legal trust established in accordance with China's Trust Law and relevant laws and regulations, and its transaction model can be briefly described as follows:

***I***The trust parties of Huarong Asset Disposal Trust

Huarong, as a trustee, has the corresponding claims and assets, and CITIC Trust is the trustee. assets, with CITIC Trust as the trustee, to establish a property trust. The beneficiary of this trust at the time of its establishment is Huarong Company, which enjoys all the trust beneficiary rights ***including all the priority beneficiary rights and secondary beneficiary rights*** since the effective date of this trust; after the establishment of this trust, investors can acquire the priority beneficiary rights under this trust through assignment or other legal ways and become the beneficiaries of this trust.

Successful examples of asset securitization3:

Asset securitization refers to a group of underlying assets capable of generating independent and predictable cash flows, through a series of structural arrangements and combinations, separating and reorganizing their risk and return elements, and implementing a certain degree of credit enhancement, so as to convert the expected cash flow of the combined assets' The process of converting the yield rights of the expected cash flows of the portfolio assets into asset-backed securities with higher credit ratings that can be sold and circulated. Unlike traditional credit financing, which mainly relies on the issuer's own credit level, asset-backed securities are financed by the future cash flows of the supporting assets, and the solvency of the supporting assets themselves is separated from the credit level of the issuer, which is not affected by the size of the company's net assets and profitability indexes, and which can enhance the efficiency of the utilization of the company's stock of assets, making it a new way of direct financing.

The asset securitization business was invented by Wall Street and flourished in the United States. Americans say, if there is cash flow, securitize it. Currently, asset securitization is an important financing method in the U.S. capital market, and the proportion of asset securitization scale to GDP has been above 50% for 10 consecutive years. 2012 U.S. issued asset securitization product scale of 2. 07 trillion U.S. dollars, a year-on-year increase of 24. 38%. 2012 end of the U.S. securitization scale of assets of about 8. 96 trillion U.S. dollars, accounting for about 55% of the GDP ratio.

China's corporate asset securitization has been piloted since 2005. Since August 2005, when CICC issued the first special asset management plan based on CDMA network lease fee revenue rights, it has experienced two rounds of development. The first round was from 2005 to 2006,*** when nine companies issued asset securitization products. Affected by the subprime crisis, the pilot was suspended in 2009 and 2010, and the State Council re-authorized the pilot in 2011.

Let's look at two recent examples of how asset-backed securities work.

I. Special Asset Management Plan for Tunnel BOT Project

On May 14, 2013, the "Special Asset Management Plan for Tunnel BOT Project" set up by Guotai Junan Asset Management Company Limited was approved by the CSRC for issuance, and became a new asset management plan under the New Regulations on Asset Securitization Business Administration of Securities Companies issued by the CSRC in March this year. This is the first asset securitization product successfully issued after the new regulations of "Regulations on the Administration of Asset Securitization Business of Securities Companies" issued by the Securities and Futures Commission in March this year.

The subscription funds raised by the special asset management plan are used to purchase the underlying assets from Dalian Road Tunnel Company, a subsidiary of the tunnel company, namely the revenue from the tunnel franchise for the period from April 20, 2013 to January 20, 2017 as agreed in the relevant contract. In layman's terms, it means that the tunnel company will receive the funds raised in a lump sum after the end of the fund raising of the special asset management program, and in return, the tunnel company will hand over the "road money" received from the drivers in the future within the agreed period to the "special asset management program" one after another. This "special purpose vehicle" will be used to repay the principal and interest. According to the "Securities Company Asset Securitization Business Regulations", the underlying assets can be property rights or property, in this plan, the underlying assets refers to the future part of the tunnel period franchise income.

After the establishment of the special program for tunnel shares, the relevant asset-backed securities products will apply for listing and transfer on the Shanghai Stock Exchange, and will be the first asset-backed securities to be listed and transferred on the fixed income platform of the SSE. The Fixed Income Platform provides a variety of transfer options and real-time settlement mode for the asset-backed securities, and allows securities companies to provide market-making services for the products. SSE will also launch an agreement repurchase function on the fixed income platform to provide repurchase financing for investors in asset-backed securities.

In order to prevent risks, the Tunnel Stock Special Plan provides effective protection for the interests of investors in the preferred order of securities:

The Special Plan adopts a preferred/subordinated structure and an external guarantee mechanism for credit enhancement, with Dalian Road Tunnel Company, the original owner of the interest, holding the subordinated products, and Shanghai Urban Construction Group, the controlling shareholder of the Tunnel Stock, guaranteeing the repayment of the future cash flow.

From this case, several features can be seen:

1, the investor receives the future income generated by the underlying assets in the form of principal repayment and interest payment of the asset-backed securities. The original owner of the underlying assets*** the financier, in this case Tunnel Stock, receives cash through the sale of future proceeds from the securitized assets. This is still in essence debt financing, and the financier and investor have broadened their financing and investment channels respectively through the securitization operation.

2, just the tunnel's right to receive income for part of the future period as the underlying asset, the tunnel this asset is still retained in the balance sheet of the tunnel shares, not out of the table.

3, the issue can be transferred in exchange transactions after issuance. This will greatly enhance the liquidity of the securities.

4, The Shanghai Stock Exchange will allow securities companies to provide market maker services. Market makers play a role in connecting and centralizing otherwise decentralized bond trading, thus activating the market and improving securities liquidity.

5, securities credit enhancement. The main risk of asset-backed securities is the certainty of future cash flows. Future cash flows are difficult to control, and credit enhancement mechanisms are needed to provide holder confidence and reduce financing costs, such as guaranteed mortgages. In this example, the future repayment is guaranteed by the controlling shareholder of Tunnel.

Let's see what kind of impact the asset securitization business will have on securities companies. When I analyzed CITIC Securities' annual report, I mentioned that a typical business segment of a brokerage firm can be divided into four divisions: brokerage and services, investment banking, asset management, and investment and credit.

Through the above analysis, we can see that the asset securitization business will likely have the following impact on the balance sheet and income statement of the securities company:

1, asset-backed securities underwriting income. This income can be attributed to the investment banking division.

2. Income from asset management fees over the life of the asset-backed securities. This income can be attributed to the asset management department.

3, market making income. It was mentioned earlier that the SSE will allow securities companies to provide market making services for the products, but we just don't know exactly how it will unfold yet. This revenue is attributed to the brokerage and services sector and requires capital consumption.

4, self investment income. The regulator agrees that the manager can subscribe to asset-backed securities with its own funds or with *** asset management programs it manages, other client assets, and securities investment funds.

The above 1, 2 income is service income, do not need capital investment, 3, 4 income need to consume capital.

This shows that the asset securitization business will likely have a significant impact on the major business units of securities firms as well as their balance sheets and income statements. With their own advantages in product design, asset pricing, risk-return analysis and other technical aspects, securities firms will be the protagonists of the asset securitization market. At the same time, over-the-counter trading of related securitization products and securities custody will also give rise to other services of the brokerage firms, including derivatives, quantitative hedging and other products can be applied to asset management, thus increasing the income and profit sources, improving the ROE level, and promoting the transformation of the profit model of the securities companies.

Let's look at another different example

Haiyin shares on May 16, 2013 released the announcement "on the establishment of Haiyin shares special asset management plan of the motion", to be issued to the commercial property rentals as the underlying assets of the asset-backed securities.

Haiyin's main business includes two segments, commercial property operation business and kaolin business. In the field of the company's commercial property operation business, the company's wholly-owned holding and subsidiary operation and management of the shopping malls across the electrical appliances, fashion, home furnishings, trendy fashion, IT digital, sporting goods industries, etc., and has been developed into a local industry leader. The commercial property operation business brings stable cash inflow to the Company every year, and the revenue from the Company's property leasing and management business amounted to RMB772 million in FY2012, with a trend of steady growth in the future. In order to meet the needs of the Company's operation and development and to broaden its financing channels, the Company intends to design an asset securitization program based on the operating income rights of 15 comprehensive commercial properties under its operation and management. The company's current asset securitization is intended to be financed through the application of CITIC Capital Securities Company Limited for the establishment of a special asset management plan for Haiyin Shares.

The underlying asset to be securitized in this phase is "the right to the operating income of the commercial property within five years from the date of establishment of the special plan, which is enjoyed by the original owner due to the operation and management of the specific commercial property". Enterprise asset securitization products, mainly for funds, brokerage firms, finance companies, enterprises and other institutional investors in the exchange issued, and in Shanghai and Shenzhen stock exchanges of fixed-income securities comprehensive electronic platform *** comprehensive agreement trading platform *** listing transfer, and can be through the brokerage market, agreement repurchase and other ways to increase the liquidity of the secondary market.

This example is not fundamentally different from tunnel shares, which are characterized by the future rent of commercial real estate as the underlying asset. Although the "Regulations on the Administration of Asset Securitization Business of Securities Companies" stipulates that commercial real estate income rights can be used as the underlying assets, but in the sensitive stall of real estate regulation, I do not know whether the SEC will approve.

The current status of the current status of the asset securitization business:

Currently through the special plan initiated by the enterprise asset securitization business has reached 12, the total amount of issuance of 24.6 billion yuan. CITIC disclosed in its 2012 annual report that its asset securitization underwriting business amounted to 10.7 billion yuan and the number was 35, accounting for about 5% of its total bond underwriting in that year, which is progressing at a fast pace.

But CITIC did not disclose the corresponding underwriting and asset management fee income in its annual report, making it difficult to measure the impact on overall earnings.