Bank of China
Auto ABS was one of the earliest sectors to develop in the Chinese securitization market. With time, market participants have improved deal structures and nurtured a relatively stable pool of investors.
As a result, Asiamoney frequently hears from onshore bankers that the industry –although still expanding rapidly in size – is filled with ‘routine’ issuances. Further, banks and securities houses lack the motivation to innovate.
But not in the case of Bank of China. An unlikely champion in the securitization industry, Bank of China’s ABS team – led by Donghai Liu, general manager of investment banking and asset management – has shone brighter than leading securities houses in the auto ABS sector this year.
This ‘big-four’ bank is not the largest underwriter of auto ABS, ranking third in volume during the awards period, behind Citic Securities and China Merchants Securities, Wind data shows, but it acted as the lead underwriter on 16 auto ABS transactions with a total value of Rmb91.2 billion ($13 billion). Among those, it underwrote Rmb22.4 billion, Wind data shows.
However, Bank of China stood out from its peers because of its ability to act on trends that will shape the market in the future and bring in international investors.
Automakers have started to use auto lease asset-backed notes (ABN) as an alternative funding channel to the more traditional auto ABS. Auto lease ABN allows non-financial enterprises to issue securitization products in the interbank market. Previously, they could only do so in the exchange market, where liquidity is much tighter.
The change came about because auto ABNs are subjected to more lenient regulations than auto ABS – at least for now. Bank of China is a pioneer of that trend.
The bank acted as the sole lead underwriter and bookrunner on BMW’s debut Bavarian Sky China Leasing ABN in April. The deal is also China’s first auto lease ABN rated by an international rating agency.
The deal is backed by the auto leases of BMW’s majority-owned subsidiary, Herald International Financial Leasing. Despite the short operating history of Herald and the deal’s lower rating than BMW’s auto ABS, Bank of China managed to price the senior class-A tranche of the note at 3.3%, only 2 basis points higher than the senior class-A tranche of BMW’s ABS, which had been sold only a month earlier.
Bank of China’s commercial weight has made it a favourite among foreign originators, who have been steadily increasing their deal size each year in mainland China.
Its close connections with the regulators, its expertise in ABN and its large international client pool all make it a strong player in the auto ABS market. But equally importantly, the bank has made the securitization business a priority.
And when Bank of China sets its mind on something, all competitors, no matter how established, should watch out.