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China ABS Awards

Best for RMBS 2019

China Merchants Securities

Cao Menghui, CMS.jpg
David Cao, China Merchants Securities

It was an easy decision to give China Merchants Securities (CMS) the award for best for residential mortgage-backed securities in China. The securities house, part of China Merchants Group, deserves the title in every possible way.

CMS has ranked first in RMBS underwriting volume for five years in a row. During the awards period, the team, led by David Cao, head of financial institutions and co-head of ABS business, underwrote Rmb111 billion ($16 billion) of RMBS transactions, a 20.5% market share, Wind data shows. Its closest rival has 13.5% of the market.

CMS is also the go-to securities house for almost every large RMBS originator. During the awards period, it participated in every deal originated by Agricultural Bank of China, China Merchants Bank and the Industrial Bank. It has also taken part in 73.3% of the deals originated by China Construction Bank, the largest player in the market.

However, CMS has not rested on its laurels. Instead, the firm is making the market better, one deal at a time. CMS has completed a series of landmarks that are textbook definitions of an RMBS deal done well. One example is Jianyuan 2019-7, a Rmb9.87 billion four-tranche trade sold on the day after the USD/CNH exchange rate broke the seven handle for the first time in a decade.

The deal, whose three senior tranches are rated triple-A by S&P Global Ratings, sailed through the trade tension and saw a record high of international participation: 14 global investors gobbled up Rmb2.61 billion. Among those 14, eight were investing in the Jianyuan series for the first time.

The execution of the deal also illustrates the dedication of CMS to solving a long-lasting problem in the Chinese RMBS market, notably the lack of secondary market liquidity.

CMS and other underwriters provided continuous two-way market-making service for class A1 and A2 notes of Jianyuan 2019-7 on every trading day. Further, they managed to qualify the triple-A rated senior tranches for pledged repo collateral, making the notes more attractive to onshore investors. That was especially welcome, since smaller brokers were finding it increasingly hard to get their collateral accepted by larger banks.

CMS has a dominant market share and a clear determination to improve the RMBS market; contenders have a long way to go before they can pose a threat to its position.

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