Thailand Financial News

Fitch Ratings said today that the recently published securitisation rules in China could help the growth of the country’s emerging securitisation market, and the agency expects this could lead to more securitsations in the next two years.
The three new ministry level rules published last year and this year provide a basic legal framework for securitisation in China.

“One of the key points of the rules addresses tax and accounting issues: it states that originators can remove the entrusted assets from its balance sheet only if it has transferred at least 95% of the risk and return associated with the entrusted assets,” said Jet Zhou, associate director in Fitch’s Structured Finance team in Beijing. He added that another key feature is that a special purpose trust is designated as the only eligible issuer of structured finance paper and is taxed on the interest income of the underlying assets. The agency, however, said there are still limitations to the current regulations. “The originator in the securitisation transaction can only be a financial institution, not a corporation. This will likely limit the growth of the securitisation market,” said Mr. Zhou. The People’s Bank of China (”PBOC”) and the China Banking Regulatory Commission (”CBRC”), who jointly regulate the securitisation market, have submitted a comprehensive assessment report to China’s highest government authority (”the State Council”) after the country’s first two pilot projects were launched last year (CDB 2005-1 CLO and CCB 2005-1 RMBS). A few commercial banks have been closely watching whether the Chinese authorities would carry out more experimental securitisation deals. Fitch points out that the likely forthcoming transactions originated by these commercial banks will either be CLOs or RMBS. The motivation behind these experiments will likely be to adjust the bank’s asset/liability structure as well as to gain related know-how. The final roll-out of the deals depends largely on when the State Council would give its approval. The agency expects this to occur sometime this year. The agency also notes that besides traditional securitisations, there could also be more issuance of specific asset management plans (”SAMPs”), which are certificates backed by corporate assets and other privately-issued trust certificates. “The integration of the SAMP market with the conventional securitization market could stimulate the growth of the overall market” Mr. Zhou added. –www.theasianbanker.com (May 31  2006)–