* Banking watchdog allows for leasing securitisation
* Rules also strenghthen leasing guidelines
* Other regulators, though, have to approve deals too
By Nethelie Wong
HONG KONG, April 17 (IFR) - New rules from the China Banking
Regulatory Commission may jumpstart the market for securities
backed with financial leasing assets, though hurdles other
regulators have put up, as well as high financing rates, are
likely to limit its growth.
The CBRC recently amended its rules to encourage new
entrants - both domestic and foreign - to the financial-leasing
business and to allow them to access a wider range of sources of
capital for funding, including securitisation.
Until now only the China Securities Regulatory Commission
has approved leasing ABS issues. Leasing companies, however, are
also answerable to the CBRC as well as other regulators,
ultimately meaning even CSRC-approved ABS deals from the sector
have not seen the light of day.
Such mixed messages from different regulators point to the
problems China faces in developing a robust local bond market,
where it is still not always clear which regulator has what
Still, although the new CBRC rules do not remove all
barriers for leasing companies, market participants generally
welcome them as a move in the right direction.
"Amendments to rules for financial-leasing companies in
China look set to make leasing ABS deals possible there," said
Helen Wong at Fitch Ratings.
"The regulatory framework for securitisation in China
continues to develop, and this may bring to the market new asset
classes, including equipment leases and aircraft leases," Wong
In Wong's opinion, in addition to facilitating
securitisation, the CBRC rules strengthen the operating
environment for leasing companies and limit the risk of
originator and servicer defaults.
The guidelines also include tighter supervision and
management of capital adequacy ratios.
Stronger requirements are likely to give investors in
leasing ABS more comfort in the structure, sources say.
Securitisation professionals said several attempts by
leasing companies in the past two years to sell ABS failed
because issuers were not able to get all regulators involved to
approve the offering.
ICBC Financial Leasing, for instance, received the blessing
of the CSRC for an ABS issue in late 2012, but the company was
unable to get necessary endorsements from other authorities
before May 2013, when the CSRC approval expired.
China had more than 20 financial-leasing companies with
Rmb900bn of assets as of the end of June 2013. ICBC Leasing is
estimated to have assets of about Rmb150bn.
The CBRC's rule change is appreciated, but market
participants remain wary.
"I hope this time all the authorities are willing to keep
the doors wide for leasing companies to make ABS a regular
source of funding," said a securitisation banker.
Another deterrent to the market's growth are high domestic
In the past, ABS transactions allowed corporate borrowers to
save as much as 200bp over China bank lending rates.
Since mid-2013, though, domestic interest rates have risen
significantly. Corporate borrowers need to pay higher rates on
ABS issues, in addition to the typically higher transaction
costs associated with the asset class.
Bank of China priced a three-tranche Rmb9.38bn ABS in late
March. The issue included a Rmb7.693bn tranche A, priced to
yield 6%, and a Rmb891m tranche B, priced to yield 6.98%. At the
time, central bank benchmark lending rates were at 6.15% and
6.4%, respectively, for similar tenors, suggesting the ABS
provided little savings.
The fact offshore bond and loan markets are receptive to
senior debt from Chinese leasing companies also means borrowers
have other avenues available for financing.
ICBC Financial Leasing is in the process of syndicating a
US$300m three-year transferable term loan for its Hong Kong
subsidiary. The bullet loan pays an all-in rate of 225bp over
Libor, translating to about 4.375% in renminbi, assuming mid
Last Wednesday, Bank of Communications' financial-leasing
arm priced a five-year US$500m bond to yield 175bp over US
Treasuries, which translates into an even lower yield in
(Reporting By Nethelie Wong; editing by Christopher Langner,