Asset Securitization and China - Summary

							Asset Securitization and China - Summary

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Asset Securitization and China - Summary
First, offshore asset securitization project finance case - Guangshen Zhu Expressway
Securitization

(A) Guangshen Zhu Expressway project financing securitization Introduction

Guangshen Zhu (Guangzhou - Shenzhen - Zhuhai) highway construction is the
harmony Holdings Limited and the co-product of the provincial communications
department. To raise a Shenzhen, Guangzhou - Zhuhai highway construction funds,
project developers Harmony Holdings Limited of Hong Kong registered in the
Cayman Islands through the Delta Highway Co., Ltd. established in the British Virgin
Islands Guangzhou-Shenzhen Highway Holdings Limited, and to toll road concession
rights for the support of the international capital markets by issuing 600 million U.S.
dollars in bonds to raise funds for the Guangzhou - Shenzhen - Zhuhai Expressway
East Project. Harmony holds 50% stake in Guangshen Zhu Expressway, and
eventually hold Guangshen Zhu Highway East franchise for 30 years until 2027. In
the franchise at the end of the unconditional surrender of all assets to the Guangdong
Provincial Government.

Nature, the Guangzhou - Shenzhen - Zhuhai Expressway project finance asset
securitization is offshore (transnational) Asset Securitization (cross-border
securitization) financing model. Offshore Asset securitization refers to the
cross-border asset securitization operation mode, is generally believed that domestic
financing by foreign parties in the international market spv asset securitization
approach to the way foreign investors shall be financed offshore asset securitization of.
Some scholars pointed out that the "infrastructure charge mode"
+ "offshore model" can serve as a launch asset securitization
one of the breakthrough model.

(B) of the offshore assets of the advantages of securitization of project finance

1. From the perspective of securitization products, offshore asset securitization project
financing has the following advantages: (1) infrastructure charges of securities
comply with the asset securitization financing product requirements, the
project's future cash flow more stable and reliable, easy to calculate , in the
foreseeable future to meet the cash flow to support the requirements of securities
issued and the "reorganization of assets" theory. (2) in the
trading organizations, the original interest in the project's earning power
will be transferred to outside spv, achieved a key step in securitization - Bankruptcy
isolation. (3) the realization of the internal hierarchical bond credit enhancement
through guarantee means to achieve external credit enhancement. Credit enhancement
technology reduces the cost of international capital market financing.

2. And other types of project financing compared to the offshore asset securitization
financing was characterized by strong the advantages: (1) it can effectively
Kefujieyong Guowaidaikuan and foreign direct investment Deng Xi Shou Chuan
Tong Dai Lai Wai Zisuo introduction of foreign debt Yali and industrial safety. (2) due
to credit enhancement measures, as in the capital market to raise large-scale increases,
the cost can be lowered. (3) offshore asset securitization and financing on the
completed projects under construction are applicable, without the limitations of the
project, the offshore asset securitization financing of this process sovereign
governments always retain ownership of the project.

3. From the trading sector geographical distribution, the offshore project financing,
asset securitization also has its inherent advantages: (1) offshore support asset
securitization financing bonds to meet the legal requirements of the country, to avoid
the uncertainty aspects of the system in China nature of project financing, asset
securitization to ensure the smooth completion. (2) issuance of securities outside the
market when faced with large capacity, relatively large institutional investors.

4. From the financial point of view: (1) offshore asset securitization financing and
other forms of project financing would like to have a great advantage than it can
effectively overcome the absorption of foreign loans and foreign direct investment,
foreign capital brought the traditional the pressure of external debt and industrial
safety; (2) because of credit enhancement measures, when large-scale in the capital
market to raise funds, the financing costs can be lowered.

5. Other. Offshore asset securitization financing infrastructure projects that have been
completed and can be applied in construction projects, without the limitations of the
project; in offshore asset securitization financing of the entire process of sovereign
governments always retain ownership of the project.

(C) the lack of offshore asset securitization

1. Foreign exchange controls and exchange rate fluctuations. Offshore Asset
securitization is the biggest obstacle to foreign exchange management system,
because by "offshore asset securitization model" to raise the
foreign exchange, debt service have to be foreign, but the assets, cash flow is the yuan,
but China has not yet implemented capital account convertibility, how to cash flow
from RMB into foreign exchange has become a big obstacle.

The same time, offshore asset securitization approach to project financing, must be
involved to set up an overseas spv transfer of assets as security guarantees, and these
assets are often completed project the right to return or accounts receivable. Since
China currently existing requirements (such as the People's Bank
"international commercial loans borrowed by domestic institutions
Regulations") will be similar to the asset securitization transaction
included in the scope of external debt management, therefore, offshore asset
securitization financing of project financing to be included in the scale of guiding the
national program, the State Administration of Foreign Exchange shall be subject to
financing conditions of approval or review.

In addition, foreign currency exchange rate changes also affect the stability of cash
flow.

2. As the main process of securitization of assets in overseas operations, overseas
investors are, therefore, development of domestic securities is difficult to play a larger
role in the promotion and testing.

Second, financial institutions dispose of credit assets in trust for a useful attempt -
Huarong Asset Management Corporation Assets Trust Project Case Study

June 2003, China Huarong Asset Management Corporation and CITIC Trust signed
"Property commission contract" and "disposal of
trust property commission agreement" will be 13.25 billion yuan of bad
debt assets entrusted CITIC Trust and Investment Company set up a three-year
property trust and the priority of power transfer them to investors. This is known as
"the direction of the asset securitization has taken an important
step" in a pioneering way of disposal of assets - Huarong Assets Trust
project. (The content can be found in Wang Xiaobo, Wang Haibo, Liu Borong text:
"non-performing asset securitization in a bold experiment", in
"Financial Times" September 12, 2003 6th ed.)

Huarong Assets Trust project full advantage of the trust system to provide the
operating platform, is a major innovation in the disposal of assets, this asset-based
investment contracts trading patterns, not only for financial asset management
companies and state-owned commercial banks to speed up disposal of bad assets a
useful exploration, and its
?
Transaction structure financing for infrastructure projects has some reference value. In
addition, commercial banks can also take advantage of this trust model to manage its
project loan project, spread and control of the project loan risks.

According to Huarong Asset Management Corporation publicly disclosed information,
Huarong Asset disposal of trust account transactions in accordance with
China's "Trust Law" and relevant laws and
regulations established by the legal trust, its trading pattern can be summarized as
follows:
(A) of the Huarong Assets Trust Project Trust party

Huarong company as a client, the corresponding claims in its own assets to CITIC
Trust as trustee, the establishment of the trust property. The beneficiaries of the trust
set up during the Huarong company, Huarong company since the effective date of this
Trust have all the trust benefits (including all beneficial right of priority and
secondary beneficial interest); the trust established, investors can be or other lawful
means to achieve this priority under the trust beneficial interest, as a beneficiary.

(B) of the Huarong Assets Trust's basic transaction structure

1, the core of the legal relationship between transactions. Huarong Trust item disposed
of three core legal relationship exists: (1) Huarong company as a client and CITIC
Trust as trustee of trust between the legal relations; (2) CITIC Trust commissioned
Huarong Trust Company disposed of non-monetary assets agency relationship; (3)
Huarong companies and investors the priority of power transfer between the legal
relationship.

2, the basic transaction process: (1) the establishment of trust. Huarong signed with
CITIC Trust "Huarong Asset disposal of property trust contract",
Huarong will be eligible to claim the assets disposed of is set to the trust property and
its transfer to the trust held by CITIC, Huarong company as trust property
beneficiaries. (2) non-monetary trust assets entrusted disposal. CITIC Trust and
Huarong signed, "commissioned by the Trust property disposition
agreement", CITIC Trust commissioned Huarong clear collection, disposal,
realization of non-monetary trust property. Huarong disposal of non-monetary
currency generated by the trust property funds, by the Huarong company CITIC Trust
regularly assigned to open in the custodian of funds managed accounts. (3) priority of
the transfer of beneficial interest. Priority of the trust shall be divided into
sub-beneficial interest and beneficial interest in the trust set up by the Huarong time to
enjoy. CITIC Trust will be commissioned Huarong priority power transfer to the
investors, such as the transfer period, CITIC Trust not all priority power transfer to the
investor, CITIC Trust commitment to the priority of the transferee all the remaining
beneficial interest. Sub-beneficial interest held by Huarong continue. (4) The
beneficial interest in the flow priority. The distribution of benefits from the second
day the trust, investors can apply for the trustee to redeem their own priorities so
doing, the priority can also be beneficial interest transferred to other people again, or
for debts or other legal circulation. (5) priority allocation of trust benefits. CITIC
Trust is responsible for the distribution and redemption of the trust interests of the
beneficial interest priority. (6) the termination of the trust. Before the expiry of the
Trust, such as all the units are redeemed priority beneficial interest, beneficial interest
of the beneficiaries of the right to determine the secondary early termination or
continuation of the Trust. (As shown, slightly)
(C) Huarong Assets of the Trust project-related issues

1, the transfer of trust property. (1) The project reference to the risk of asset
securitization asset segregation mechanism beneficial interest in the construction
proceeds support the basis of priority assets to trust, use of the independence principle
of the trust property, the Huarong company claims assets of the corresponding set as
trust property, so that part of the assets of the company's other assets with
Huarong isolated. (2) Huarong company, CITIC Trust common to the corresponding
rights of the debtor notice of assignment issued by the notary public notice sent to the
above acts of notarization. (3) transfer of rights notification, Huarong Trust Company
and CITIC explicitly inform the debtor, the debtor company has enjoyed Huarong
claims have been transferred to CITIC Trust, Huarong will enjoy its corresponding
claims against the debtor, and other third parties have reached and entered into force
under the relevant agreements and other documents related rights under the related
rights, transferred to CITIC Trust. (4) Huarong Trust Company and further inform the
debtor of CITIC, CITIC Trust Company reserves the right to authorize the Huarong
Huarong company's name all legitimate claims recovery and disposition,
CITIC Trust Liquidate the corresponding claim against the debtor, disposed of,
realized claims by clear and have received the appropriate debtor and other interested
parties on the corresponding assets; the debtor and other stakeholders respond to the
appropriate office Huarong corresponding debt service.

2, the trust shall be the classification. Beneficial Trust beneficiaries are divided into
priority and secondary right to benefit and priority of beneficial interest in the trust
contract, the income distribution within the priority right and trust benefits,
sub-beneficial interest Beneficial interest only entitled to priority of the Trust
remaining after the interests of achieving .

3, the priority right of the trust's liquidity problems. (1) in the project,
priority Beneficial asset disposal circulation is essentially a trust beneficial interest
under the priority of rights and obligations corresponding to the transfer of the
contract should be transferred, the flow of the trust shall be subject to
"contract law" " Trust Law "adjustments,
not subject to the adjustment of the securities laws, different from the asset
securitization of asset-backed securities under the flow mode. (2) to address the flow
of priority right of the trust, the trustees established a priority right of the trust to
support the circulation of trading platforms and the corresponding management
systems and management practices.

(D) Huarong Trust the nature of the trust disposed of

Huarong Trust Trust item disposed of using asset securitization and the basic
principles of trust, draws heavily on the basis of asset securitization asset risk
isolation mechanisms to support investments in specific assets structure and the
priority / sub-trade assets such as credit enhancement mode Securitization. However,
the asset securitization program and there are significant differences, embodied in:
asset securitization transactions in securities investment tools, distribution and trading
shall be subject to "Securities Act" and relevant laws and
regulations of the specification. But in the project, priority is not beneficial interest
securities, beneficial interest in the transfer of priority is essentially the corresponding
priority under the trust beneficial interest corresponding to the transfer of rights and
obligations, should belong to the contract assignment, by "contract
law" and " Trust Law "adjustments. Therefore,
Huarong Trust disposed of trust project, called "quasi-equity
securities" of the project.

Third, commercial banks involved in asset securitization
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Financing is a useful attempt - China Industrial and Commercial Bank of China
COSCO on the securities and exchange a brief analysis of the project

China Industrial and Commercial Bank of China COSCO on the securities and
exchange projects in China's commercial banks under the existing legal
regulatory system involved in asset securitization financing broken.

(1) COSCO Shipping income accounts receivable financing

Since 1997, China Ocean Shipping Company has issued its North American shipping
in the U.S. receivables-backed floating rate notes and receivables to support shipping
in North America and Eurasia and Australia issued asset-backed securities. (For
Source: February 5, 2002 Xinhua: "China Ocean Shipping Group and
ICBC huge foreign exchange to complete the financing arrangements,"
originally contained in "China Ocean Report"; China ABS
Network: http://www.chinasecuritization.com / more/tr_2_13.htm. because of limited
information, a description of the project and the project may be the real deal out there)

China Ocean Shipping Company ("COSCO Group") financing
structure, the COSCO Group, the original rights of man (actually, a division of the
territory by right); COSCO Group established for the financing needs outside spv,
responsible for accounts receivable assets support the financing of securities; set spv,
the COSCO Group in North America, Asia and Europe and Australia shipping
accounts receivable transferred to the spv, and use this as support to the Floating Rate
Notes issued by foreign investors and asset-backed securities; COSCO Group,
provides financing for the securitization of certain guarantees; the project investors
abroad, do not involve domestic institutions.

The financing arrangement has the following functions: (1) to avoid currency
exchange risks. (2) reduce the import and export business of securitization of
receivables in the recovery period, an increase of the liquidity, encourage enterprises
to expand trade scale and help enhance export competitiveness of enterprises and the
development of foreign trade. (3) foreign exchange receivables securitization of
foreign exchange management in line with our basic principles. Because receivables
represent a consumer or broker on the outside of the claims (when such receivables
over a certain period, they were regarded as the external debt), therefore, the securities
of foreign products in this claim or claims to support, not additional external debt
burden. If such assets "true sale" to the offshore special purpose
vehicle (spv), then this cross-border asset securitization on China's
international balance of payments will not have any impact.

(B) of the Industrial and Commercial Bank of China to provide foreign exchange
financing for the replacement of the COSCO Group

The end of 2001, COSCO Group and the Industrial and Commercial Bank of China
reached 600 million U.S. dollars joint foreign financing intentions by Industrial and
Commercial Bank of China foreign exchange financing arrangements for the COSCO
Group, to exchange its U.S. commercial paper program, and North America, Asia and
Europe and Australia Asset securitization , and on this basis the asset-backed
securities (abs) of the renewal and issuance.

The financing arrangement is domestic enterprises and domestic commercial banks to
convert foreign debt to domestic debt in a useful attempt, COSCO original interest
paid to foreign investors to pay Industrial and Commercial Bank of China, the country
save foreign exchange, while also reducing the country's external debt total,
reducing the risk of the country's external liabilities.

The replacement project financing is considered the first domestic commercial banks
foreign assets of the securities business, is the largest foreign currency financing in
recent years, one of the items.

References

See Net Asset Securitization in China: www.chinasecuritization.com.

He Xiaofeng, Huang Song: "From the theoretical system of asset
securitization model of choice to see a breakthrough in China - and the eight
proposals on the existing model", in "Master Net investment
bank": http://www.ibmasters.com/focus / neirong/2001-11-15.htm.
Peng ice with: "Asset Securitization legal interpretation",
Beijing University Press in November 2001 1st edition, p. 178.

Quote from China News Network June 27, 2003 reported: "Huarong Asset
Management Corporation and CITIC Trust devaluation potential asset
securitization."

The content can be found in Wang Xiaobo, Wang Haibo, Liu Borong text:
"non-performing asset securitization in a bold experiment", in
"Financial Times" September 12, 2003 version 6.

According to Huarong Asset Management Corporation public disclosure of
information mapping.
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