China’s first small-loan securitisation makes debut

The product released by Alibaba opens the way for small loan companies in China to raise funds directly from capital markets, providing more options than traditional methods
“Alibaba No.1” and “Alibaba No.2”, as the products are called - which are backed by loans made by Alibaba’s financial arm - have each raised Rmb500 million.
“Alibaba No.1” and “Alibaba No.2”, as the products are called - which are backed by loans made by Alibaba’s financial arm - have each raised Rmb500 million.

Alibaba Small and Micro Financial Services Group, a small loan subsidiary of China’s biggest e-commerce company, on Wednesday listed a bundle of loan securitisation products in Shenzhen, the first from a smaller lender.

The move - on the INTS, a trading platform of the Shenzhen Stock Exchange - opens the way for small loan companies in China to raise funds directly from capital markets, providing more options than traditional methods - the self-funded channel from shareholders.

In the past, such credit securitisation products were allowed to be released only by policy banks or big commercial banks, with the underlying assets being loans from those banks. The small loan companies were not regarded as financial issuers and could not securitise their loan business.

However, China is restructuring its economy and directing financing to cash-strapped small- and medium-sized enterprises and the rural economy. The State Council issued Guidelines on financial support for adjusting, transforming and upgrading the economic structure in July, which signals that Beijing will steadily promote credit asset securitisation as a routine practice to support micro-enterprises’ growth.

The move also means that the institutional investors who have A-share securities or fund accounts on the Shenzhen bourse can get access to small loan assets and have one more investment and trading option.

“Alibaba No.1” and “Alibaba No.2”, as the products are called - which are backed by loans made by Alibaba’s financial arm - have each raised Rmb500 million and the mature dates are on October 28 and November 10 2014, respectively.

Both products have a dual-tranche, one tradable and the other untradeable. The tradable tranche includes assets of Rmb375 million with a priority in redemption, and assets of Rmb0.75 million with less guarantee in redemption. The expected returns of the two parts are 6.2% and 11.0%, respectively. 

Orient Securities, the issuer and manager of the products, plan to raise as much as Rmb5 billion for the securities, according to a July filing on the Shenzhen exchange website.

 “Such products are not very risky, as the number of the underlying loans is huge and the diversity has dispersed the risk of default of the whole product,” said a source familiar with the situation.

Alibaba has provided financing of a total Rmb100 billion to more than 320,000 small businesses and companies, according to a company statement in July. As of the second quarter of current year, the non-performing loan ratio of its outstanding loans was 0.87%, the company said.

The launch of such securitisation products can free up more liquidity to provide loans to small- and mid-sized enterprises that have trouble in obtaining traditional bank finance.

“Alibaba’s securitisation products are innovations. They create new business model for companies and new funding channels for the financial system,” said Song Liping, the general manager of Shenzhen Stock Exchange, on Wednesday’s listing ceremony.

China’s outstanding loans amount to Rmb16.5 trillion or 22.5% of the total outstanding loans as of end-July, Rmb353.3 billion more than last year, according to national council data.

 

 

¬ Haymarket Media Limited. All rights reserved.

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