Industrial Bank : With First CMBN Closed in Interbank Market, Industrial Bank Facilitates De-leverage for Enterpr...

Recently, the 'Shanghai Shimao International Plaza Co., Ltd. Phase I Asset-backed Notes in 2017' (hereinafter referred to as '17 Shimao International Plaza ABN001') in which Industrial Bank (IB) serves as the lead underwriter, was successfully registered in the National Association of Financial Market Institutional Investors with a scale of RMB 6.5 billion. This reflects that the commercial mortgage backed notes (CMBN) in the interbank market, in comparison with the commercial mortgage backed securities (CMBS) in the exchange market, were successfully closed and settled. This is also the largest single transaction since 2016 when the trust-type ABN business was released.

This CMBN is constructed based on the product registration system of asset backed notes (ABN), and is an ABN which takes basic assets as commercial real estate mortgage. IB, as the lead underwriter, is responsible for product structure design, due diligence and underwriting. Its subsidiary, China Industrial International Trust Limited, serves as the entrusted agency and issuing vehicle of this project.

As introduced by Lin Shu, the general manager of the Investment Bank Department of IB, the successful registration of 17 Shimao International Plaza ABN001 in the interbank bond market represents innovation in two aspects, i.e. the first dual-SPV transaction structure design and diversified means of credit extension in the interbank market.

As for the transaction structure design, the bottom assets of the project consist of trust loans which are repaid by the operation income from supreme commercial real estate in Shanghai. Through business innovation, the bank has transferred the trust benefit right of trust loans to asset-backed note trust and issued ABN in the interbank market with the asset-back note trust as the issuing vehicle. Senior A asset-backed notes amount to RMB 3.8 billion; senior B asset-backed notes amount to RMB 2.4 billion; secondary asset-backed notes amount to RMB 300 million, all with the term of 20 years. They are opened every 3 years. Senior A and B are rated as AAA and AA+ by the rating organization respectively.

As for the means of credit extension, in addition to the mortgage of bottom commercial real estate, CMBN has also arrange Shanghai Shimao Construction Co., Ltd., the main operating entity of Shimao in China, to provide joint liability guarantee for bottom trust loans and complement the balance when the net cash flow of bottom commercial real estate is insufficient. According to estimations, the net operation income of properties of the target bottom assets (Shimao International Plaza and hotels) covers 1.35 times of the annual expenditures of principal and interest of senior A asset-backed notes, thus providing some safeguard for investment safety.

The successful registration of CMBN not only expands the inclusiveness of ABN products, but also takes the advantages of strong risk identification and low issuing cost of investors in the interbank market, thus playing a very significant role in de-leveraging for entities and enterprises and facilitating the development of asset-backed notes for non-financial enterprises in the interbank market.

In December 2016, National Association of Financial Market Institutional Investors released the Guidance on Asset-backed Notes of Non-financial Enterprises in the Interbank Bond Market (revised), which specifies to introduce trust as the special purpose vehicle (SPV) into the transaction structure and allow trust-type ABN products to be implemented. The emergence of trust-type ABN enables public offering of enterprise asset securization in the interbank market and promotes the rapid development of enterprise asset securization.

Now IB has become a leader of ABN business. In 2016, National Association of Financial Market Institutional Investors successfully registered and issued 12 counts of trust-type ABN business with a scale of RMB 23.491 billion. Wherein, there are 5 counts of ABN business underwritten by IB, accounting for 41.67% with the underwritten amount of RMB 5.718 billion, accounting for 24.34%. The categories of products include receivables recurring purchase asset-backed notes, receivable leasing payment asset-backed notes, consumer finance asset-backed notes and etc. The successful registration of CMBN further consolidates the market position of IB in asset-backed notes.