The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney is part of the Euromoney Institutional Investor PLC
Northeast Asia

China asset-backed notes: it’s time to fly solo

Too many Chinese investors focus on the originator more than the asset pool. That undermines one of the crucial purposes of securitization.

What is securitization for?

Critics might answer that its purpose is simply to make banks money. There is a grain of truth to this, since banks wouldn’t bother with a market that offered no upside. But regular ABS issuers are stingy. There are some ancillary benefits of managing a company’s securitization, as well as the potential for profit on banks’ trading books, but securitization is hardly a big money-spinner.

The other obvious answer is that securitization is just another funding tool, offering originators an all-in cost of funding that should be at least as attractive as other financing options, if not much cheaper. Again, this is not far off but it ignores the crucial advantages for investors and originators that securitization offers.

Let’s stick with a textbook-style definition. Securitization is the process of transforming assets — anything from mortgages or auto loans to future receivables on airline tickets — into securities.

Different Approach - Different Direction
Eoneren/Getty Images/iStockphoto

It allows investors to get direct exposure to the cash flows generated by a pool of assets, rather than taking credit risk on an individual company. This has a crucial advantage: estimating cash flows from well-defined asset pools should be much easier than figuring out likely cash flows from corporations, which tend to be well-trained in the dark arts of obfuscation and puffery.

There


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree