Development and legal structure of the asset securitisation market

The term “asset securitisation” means a structured method of financing where the sponsor sells assets, or a portfolio of assets, that lack liquidity but can generate a predictable cash income to an investor, thus creating a financial instrument or equity units backed by the cash flow generated from the underlying assets which the investor has the ability to sell on a capital market to realise the cash value of such asset-backed securities. Asset securitisation in China is divided into the credit asset securitisation market and corporate asset securitisation market, based on the type of underlying assets, the regulator, trading venue, rules and regulations, etc.

The state of market development

The asset securitisation business formally started in China in 2005. Between 2005 and 2008, the China Banking Regulatory Commission (CBRC) approved the issuance of 45 credit asset securitisation products worth RMB59.7 billion (US$9.7 billion). The China Securities Regulatory Commission (CSRC) approved the issuance of nine projects that brought in financing of RMB26.3 billion. Between 2008 and 2010 there was a lull, with no products issued.

Commencing in 2011, the CSRC again began to approve asset securitisation projects, with a total of six new products successfully issued, raising approximately RMB13.2 billion in financing as at mid-December 2013. In May 2012, the central bank, the CBRC and the Ministry of Finance also jointly issued the Notice on Matters Relevant to Further Expanding the Pilot Project for Credit Asset Securitisation, restarting credit asset securitisation.

Lawrence Lu is a senior partner and head of the financial securities practice group at SG&CO PRC Lawyers in Shanghai