November 5, 2013 / 11:22 AM / 5 years ago

China Development Bank to launch ABS backed by railway loans - sources

* China policy bank to sell asset-backed securities

* Deal worth 8 billion yuan to launch in late November

* China policymakers keen to ramp up securitisation

* Securitisation seen improving credit allocation

SHANGHAI, Nov 5 (Reuters) - China Development Bank (CDB) plans to sell asset-backed securities backed by an 8 billion yuan ($1.3 billion) loan to the country’s state railway operator this month, sources with direct knowledge of the matter told Reuters on Tuesday.

CDB, one of three Chinese policy lenders that support government-backed projects, is expected to issue the asset-backed securities (ABS) in the interbank market around Nov. 20. The bond-like securities will mature in June 2017, the sources said.

China’s government announced in August that it would aggressively expand an ABS pilot programme.

Reuters reported last month that foreign banks have been invited to apply for permission to issue ABS for the first time since the pilot programme was launched in 2005.

Chinese policymakers see securitisation as a tool to shift risk away from the banking system to reduce the chances of a financial crisis as economic growth slows and the level of bad loans rises.

According to the sources, China Credit Rating Co. has given the railway ABS a rating of AAA based on the credibility of the borrower, the state-owned giant China Railway Corp.

RAILWAY RESHUFFLE

In a bureaucratic reshuffle early this year, the government eliminated the scandal-plagued Railways Ministry, merging its administrative function into the Ministry of Transport, while commercial functions were given to China Railway.

CITIC Trust will serve as trustee for the ABS, issuing it on behalf of the lender, while CDB’s brokerage affiliate, China Development Bank Securities, will be lead underwriter of the issuance, the sources said.

Officials were not immediately available for comment.

After China launched the pilot in 2005, about a dozen firms, including CDB, floated a combined 67 billion yuan before the programme was suspended in 2008 due to the global financial crisis.

It was resumed in 2012, with companies given a total ABS quota of 50 billion yuan. About half of that has been used so far, according to Reuters calculations based on official, corporate and media reports.

Market sources told Reuters that regulators are planning to grant quotas totalling 300 to 400 billion yuan for companies to sell ABS in coming years, as the government shifts its policy focus to better allocation of existing credit supply rather than rapid credit growth.

The government has often chosen CDB to take the lead in rolling out innovative financial products. The bank is likely to take up to 100 billion yuan in the new ABS quota mainly to securitise its loans to China’s railway sector, vital to the country’s growth, the sources said.

China’s broad M2 money supply topped 100 trillion yuan for the first time in March and reached 107.7 trillion yuan by the end of September, causing widespread worries over excessive supply that could fan inflation, push up already red-hot property prices and spark over-investment. (Reporting by Sheng Luo and Gabriel Wildau; Writing by Lu Jianxin; Editing by Richard Borsuk)

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