Easier securitization process coming soon

Regulator reportedly streamlining issuing of asset-backed securities

The China Securities Regulatory Commission will streamline procedures for the issue of asset-backed securities by brokerage firms, the National Business News reported on Thursday.

The move could mean a huge expansion in a pilot program that has led to issues of 250 billion yuan ($40.5 billion) so far.

The newspaper said it had seen a document showing that the CSRC will adopt a system of shelf registration to replace the current approval-based one for ABS, which are financial instruments based on a pool of assets. Those assets can include bank loans, leases and receivables.

After the change, ABS that meet certain requirements on a "negative list", which will specify the assets that cannot be securitized, can be issued simply by notifying the CSRC, the report said. The current system means an issue can take months to receive approval.

The newspaper said that public comment is being collected on the draft. It did not say when the change might take effect.

The CSRC could not be reached for comment on Thursday.

The banking and insurance regulators have also been reported to be making regulatory changes to support the ABS market, leading to expectations of a market boom in the second half.

China's ABS market was born in 2005, when China Development Bank issued bonds based on loans totaling 4.7 billion yuan. So far this year, ABS issues have reached 97.1 billion yuan.

The report said that Chinese brokerages had filed 33 issue applications with the CSRC by Dec 16, 2013, totaling 38.2 billion yuan. But none of these has been approved.

Analysts said these issues will hit the market fairly soon if the reform goes through as expected.

ABS make assets more liquid and diversify risks. They have an "irreplaceable function" in China's credit market, where financing costs are high and outstanding loans are "massive", wrote Li Xudong, a fund manager with Zhongrui Fund Management, in a note commenting on the report.

ABS issues allow lenders to turn loans into cash, increasing their ability to lend.

"This is why China has chosen this time window to speed up ABS issues," wrote Li.

China needs to keep liquidity buoyant for the rest of the year to maintain the recent rebound in growth momentum, Helen Qiao, chief greater China economist at Morgan Stanley, told a news briefing on Thursday in Shanghai.

The economy rebounded in June after a soft patch, with industrial profit growing at the fastest pace this year, after some banks' reserve ratio requirements were cut and home purchase curbs were eased in many cities.

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