Asiamoney China ABS Awards 2018
China’s asset-backed securitization market, already the largest in Asia, still has plenty more room for growth. The winners of Asiamoney’s China ABS awards are helping to push that expansion – one deal at a time.
Best firm overall for securitization: China Merchants Securities
Chinese banks, securities houses and foreign banks operating in China (either through their local branches or an onshore joint venture) have worked hard to boost not only volumes in the asset-backed securities market, but also the level of structural complexity.
The competition has been fierce, but one securities house has managed to maintain its leadership in China ABS underwriting.
China Merchants Securities, part of China Merchants Group, has ranked number one in China ABS underwriting volumes for three consecutive years since 2015, when the central bank relaxed rules and spurred growth in issuance. The firm is on track to wrap up 2018 with the same success.
During our awards period, CMS underwrote 125 deals in the interbank and exchange markets (including asset-backed notes, or ABN) worth Rmb256 billion ($37 billion), boasting a 14.4% market share, according to China financial data provider Wind. It also dominated the largest asset class, residential mortgage-backed securities, ranking number one not only between October 2017 and September 2018 but also every year since 2015.
CMS has a diverse client base. It has worked closely with every big state-owned bank, including China Construction Bank, the largest originator of RMBS in the country. It has also done deals for policy banks and joint-stock banks, as well as global companies such as BMW, Ford and Mercedes-Benz.
The firm’s name could also be found in an overwhelmingly large number of landmark or even market-opening trades during our awards period, including the first ABS deal sold through Bond Connect, the first Bond Connect collateralized loan obligation, the first Bond Connect RMBS and the first RMBS that received a triple-A international rating.
In auto ABS, CMS worked on 17 transactions during our awards period, according to Wind, over three times the number its closest rival had done. In terms of volume of auto ABS underwriting in China in the first three quarters of 2018, it also surpasses that of China Citic Securities for the first time. In corporate ABS, the firm was also a front-runner, taking part in innovative transactions such as ABS backed by revenues from a sewage-treatment public private partnership (PPP) project, as well as a market-opening real estate investment trust ABS.
China Merchants Securities has structured, priced and sold some of the most innovative deals in China’s securitization market this year. The fact that it has also done more than its rivals is simply icing on the cake.
Best firm for residential and commercial mortgage-backed securities: China Merchants Securities
RMBS is the largest asset class in the onshore China securitization market, thanks to the consistent deal flow and the benchmark size of many transactions. The steady volumes have led to quite a standardized market, but this year China Merchants Securities proved that innovation is still possible.
The firm is the indisputable leader in RMBS, having ranked number one for RMBS underwriting volumes for three consecutive years since 2015, as well as 2018 year-to-date. CMS, during our awards period, underwrote 28 transactions worth Rmb104.8 billion ($15.2 billion), taking almost 23.7% of market share, according to Wind.
It has been the go-to firm for the biggest RMBS originators, from state-owned names such as China Construction Bank, Industrial and Commercial Bank of China and Bank of China, to commercial lenders China Merchants Bank and Industrial Bank.
CMS was also very much involved in the opening up of the RMBS sector following the launch of Bond Connect, acting as the lead underwriter for landmark trades such as CCB’s Jianyuan 2018-2, which was the first-ever Chinese RMBS transaction sold through Bond Connect, and Jianyuan 2018-11.
Its unbreakable relationship with CCB, the single largest originator for the asset class, was a testimony to CMS’s market-leading practice.
CMS has not just performed well day-to-day, but has also made long-term investments in the market. Noting that China’s securitization products had always lacked secondary market liquidity, since October 2017, CMS has been underwriting a number of credit ABS deals that provide a two-way market on every trading day, including Jianyuan 2017-5 and Jianyuan 2018-11 RMBS. Jianyuan 2017-5, sold in October 2017, was the first RMBS to include a market-making mechanism.
Best firm for auto loan asset-backed securities: HSBC
Over the year, HSBC has established itself as one of the leaders in the securitization market in China, having become the first foreign bank to act as sub-underwriter, and then a joint lead underwriter, in 2015. Since then, it has earned a reputation as a savvy player in China’s fast-growing market under Kyson Ho, head of structured finance.
While auto ABS is the bread-and-butter for HSBC’s China securitization business, it is also safe to say that the auto ABS market would not be the same today without the likes of HSBC and its foreign bank peers.
Kyson Ho, HSBC
By leveraging its expertise in global markets and its broad client network, HSBC played a crucial role in helping to establish auto ABS as the most globalized asset class in onshore China securitization. Auto ABS has served as the stepping stone for many international investors looking in on China in the past, especially before Bond Connect came about in July 2017, making other products such as RMBS and ABN more accessible to a wider range of accounts.
Since becoming the first foreign bank to lead underwrite an onshore auto ABS transaction, HSBC has worked on 13 such deals as a joint lead underwriter as of September 30, 2018, working repeatedly with a broad range of foreign and domestic originators, such as BMW, Ford, Dongfeng Nissan, GAC-Sofinco, SAIC-GMAC, Mercedes-Benz and Volkswagen.
When asked about HSBC, even its onshore rivals – both banks and securities houses – give credit to its capability in structuring complicated deals, advising on international ratings and bringing in offshore investors. Thanks to the presence of HSBC (China), its renminbi platform and the bank’s global markets’ capability, HSBC is also able to provide hedging, as well as financing solutions to investors interested in China ABS.
During our awards period, HSBC worked on Ford Automotive Finance (China)’s Fuyuan 2018-2 in August, achieving the tightest pricing for any securitization deal in the interbank market at the time. The transaction, where HSBC acted as the sole financial adviser and a joint lead underwriter, came under a new structure to the originator that featured a fixed-rate, fixed-schedule class A1 tranche and a floating-rate, pass-through class A2. Much time and effort were needed to convince the originator and to educate investors so that both parties were comfortable.
Some foreign banks depend entirely on foreign originators to drive their business in China’s ABS market. Instead, HSBC is actively sourcing business from originators, with a more domestic focus such as SAIC-GMAC and GAC-Sofinco, diversifying into a broader client base.
HSBC was the financial adviser and a sub-underwriter on SAIC-GMAC’s Rmb10 billion ($1.4 billion) Rongteng 2018-2, a deal that was comfortably oversubscribed despite being the largest auto ABS transaction China has seen. It worked as the structuring adviser and a joint lead underwriter for GAC-Sofinco’s first Bond Connect-eligible auto ABS, the Rmb4 billion Huitong 2018-1 trade, as well as a joint lead underwriter and financial adviser for its first auto ABS deal with an international rating (AA+ by Fitch), Huitong 2017-1.
Most innovative firm: China International Capital Corp
As China’s securitization market expands, it also grows in complexity. Originators now demand tailor-made client solutions and structural innovations. CICC, more than any other firm, has answered this call.
It has been at the forefront of the market’s development. In the credit ABS market, it acted as a joint lead underwriter on the crucial deals of the year: the first Bond Connect RMBS, China Construction Bank’s Jianyuan 2018-2, and the same originator’s Jianyuan 2018-11, the first Chinese RMBS transaction that not only received a triple-A international rating but also saw the class A1 tranche fully placed among global investors through Bond Connect. It introduced the only international account that participated in Jianyuan 2018-2.
In corporate ABS and ABN, the brokerage had even more to offer when it came to bringing innovative products to the market. CICC helped structure the first pre-ABS for Far East Horizon, and was the joint underwriter and the Bond Connect financial adviser for Bank of Communications’ Rmb16.95 billion ($2.45 billion) Jiaoyuan 2018-1 credit card instalment ABS. The latter was not only the first deal of its kind to have included foreign investors through Bond Connect, but also the largest single-issue credit ABS ever sold in China.
BoCom’s Rmb9.31 billion Jiaoying 2018-1 RMBS, the first RMBS based on the use of blockchain technology, saw CICC acting as the lead underwriter and a bookrunner.
The firm also managed an ABN backed by receivables from credit card instalments for Vipshop, the online shopping website listed on the New York Stock Exchange, marking the first deal of its kind in China; the first Belt and Road ABN shelf, which started with the Rmb2.5 billion CICC-Far East Leasing 2018-1; and a number of transactions for Ant Financial backed by the debt and receivables of its online microloan services, Huabei.
CICC also helped to develop ABS products for new-economy enterprises, including CICC-UCAR auto receivables ABS phase I for UCAR, a Rmb454 million transaction where CICC was the lead. The firm was involved in all stages of the transaction from assets selection, structural design, rating communication, to investor roadshows and deal execution.
While regulatory approvals can take many months from the application date, CICC was able to help the originator get the go-ahead from Shenzhen Stock Exchange in just two weeks. The transaction was also the first O2O auto e-commerce platform ABS product China has ever seen.
Best rating agency for China ABS/MBS: China Chengxin International Credit Rating
CCXI, the first rating agency in China, has by now become familiar with moving faster than its peers. A 70/30 joint venture between China Chengxin Credit Management Co and Moody’s, it was the first company to rate an ABS product in China, and has stayed ahead of the pack ever since. It’s chair is Yan Yan.
The company claims to have been the first in China to rate everything from RMBS to static cash flow CLOs and from non-performing loan securitization to microfinance deals.
In the exchange market, CCXI mainly operates through a wholly owned subsidiary, China Chengxin Securities Rating (CCXR). Between 2015 and 2017, CCXR rated nearly 200 more transactions than its closest rival, almost a fifth of the whole market.
The products CCXR worked on had underlying assets ranging from credit assets such as mortgages, financial leases, account receivables and microloans, to assets backed by other types of receivables such as water supply, natural gas, public transport, solar power generation, ports, schools, toll roads and admission tickets.
During our awards period, CCXI and CCXR not only dominated in market share but also led in the rating of innovative products, such as the first certified ‘double-green’ CLO, Nongying 2017-1, the first ABN backed by balance payments in housing purchase for Yango Group Co, the first green ABN backed by bus fare receivables for Kunshan Public Transport, and the first property management fee-backed ABN for China Railway Construction Corp.
These firsts are quickly forgotten in a fast-growing market. But for innovations to happen in ABS, a rating analyst somewhere needs to work hard at understanding something entirely new. CCXI’s did most of that work this year – just as they have from the very beginning.
Best ABS/MBS deal overall: Jianyuan 2018-11 residential mortgage-backed securities
Originator: China Construction Bank
Lead underwriter: China Merchants Securities
Joint lead underwriters: Bank of China, China International Capital Corporation, HSBC (China)
Co-managers: Donghai Securities, MUFG and Standard Chartered
The launch of Bond Connect scheme in July 2017 marked a crucial step in the liberalization of China’s capital markets, granting international investors easier access to onshore renminbi bonds and structured products alike. The development also spurred a number of firsts, allowing originators such as Ford Automotive Finance (China) and JD.com to offer their securitization products through Bond Connect to a global audience.
Since then, 40 ABS deals worth Rmb278 billion ($40 billion) have been sold under the scheme, including 15 RMBS transactions and 19 auto ABS. China’s securitization market had already grown to become one of the world’s largest, after a 2015 move to relax rules for originators. It now looks set to become one of the most exciting, too.
But although there were many stand-out deals in our awards period, it was China Construction Bank’s Rmb10 billion Jianyuan 2018-11 RMBS that showed just how much potential there is in Chinese ABS.
The deal marked the first time that any of the three biggest international ratings agencies has assigned a triple-A rating to an onshore Chinese RMBS transaction, higher even than the sovereign credit rating (A1/A+/A+). Before this, the highest international rating obtained in this asset class was A+ from Fitch, by Postal Savings Bank of China’s Rmb3.82 billion Jiamei 2016-1 RMBS.
The originator, CCB – led by general manger Wang Yi, had already broken new ground in the onshore RMBS market. Since issuing China’s first-ever RMBS transaction in the interbank market in 2005, it has been the largest and the most consistent originator, and completed 20 deals during our awards period worth Rmb192.5 billion, far ahead of Industrial and Commercial Bank and Bank of Communications, which ranked second and third, respectively.
Since the launch of Bond Connect, CCB had been promoting its Jianyuan series RMBS to overseas investors, selling all deals under the scheme since March, when its Jianyuan 2018-2 offer became the first-ever Bond Connect RMBS.
The originator and the underwriters had been working closely with S&P Global Ratings for well over half a year, but the talk started even before then.
Given the difference in methodology between an international ratings agency and a domestic one, CCB updated S&P weekly, and the originator had to start from zero on certain data and information that had never been asked for before by another agency.
The work laid the foundation for future jianyuan rmbs transactions with a global rating, including one that ccb was offering to investors as asiamoney was going to press. With benefits such as brand recognition and a potential lower funding cost, it is just a matter of time before other originators will follow suit.