May 14, 2018 / 2:18 AM / in 2 months

China's stock exchanges tighten supervision on booming ABS market

SHANGHAI (Reuters) - China’s stock exchanges have stepped up their scrutiny of the booming asset-backed securities (ABS) market, publishing new rules that require prompt information disclosure and risk management updates from issuers.

China’s ABS market has exploded over the past few years as the government’s crackdown on shadow banking pushed borrowers to alternative sources of finance. Issuance of ABS jumped to 1.5 trillion yuan ($236.84 billion) last year, from almost zero in 2013, according to consultancy China Securities Analytics.

The Shanghai and Shenzhen stock exchanges said at the weekend that regulators supported the development of the market, but also scrutinized its potential risks.

The exchanges stipulate “timely and effective disclosure” on ABS products, on which better-informed investment decisions can be made.

The exchanges also published rules to mitigate default risks, requiring ABS issuers to submit risk-management reports to the stock exchanges every six months.

ABS have been a preferred alternative source of finance for companies struggling to cope with China’s official deleveraging campaign, which has made conventional debt finance harder to get.

Securitization allows the cash flow from a wide range of assets such as loans, real estate, toll ways and scenic parks to be used as collateral for bond-like securities that are sold to investors.

Reporting by Samuel Shen and John Ruwitch; Editing by Eric Meijer

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