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S&P Global Ratings & BCCL Virtual Seminar 2021: Demystifying China CreditsWednesday, September 15, 2021
Housekeeping Notes
Have a question? Use the Q&A chat box and we’ll answer your question in the course of the event or via email.
Slides for this event can be found in PDF form in the resource widget.
Check out additional research, insights and commentaries published by us in the resource widget.
Find out more about our speakers by clicking on the speaker bio widget.
3
Seminar Agenda
4:00 - 4:10 pm: Access To China Bond Market
Phoebe Leung, Senior Vice President, Head of Sales & Marketing, Bond Connect Company Limited
4:10 - 4:40 pm: Deep Dive Into China's Credit Market And Structured Finance
May Zhong, Head of Analytics, S&P Global (China) Ratings
Jerry Fang, Senior Director & Analytical Manager, North Asia (ex. Japan), Structured Finance Ratings, S&P Global Ratings
4:40 - 4:50 pm: A Future Track To Primary
Benton Wong, Vice President, Sales & Marketing, Bond Connect Company Limited
4:50 - 5:35 pm: Panel Discussion - Development Of Green Bond Market In China & Prospects Of Sustainable Investing
Brad Gibson, Co-Head of Asia Pacific Fixed Income, AllianceBernstein
Jing Wen, Deputy Chief Manager, Investment Banking Department, China Construction Bank Corporation
Shan He, Deputy Director, Treasury and Financial Management Center, China Three Gorges Corporation
Daming Cheng, Member of CICC’s IBD Business Development Committee, Managing Director, China International Capital
Corporation Limited
Moderator:
Erik Christianto, Director, ESG Product Specialist, S&P Global Ratings
5:35 - 5:45 pm: Q&A
Access To China Bond Market
Phoebe Leung
Senior Vice President, Head of Sales & Marketing, Bond Connect
Company Limited
5
A Joint Venture Of
FAST TRACK TO CHINA BOND MARKET
2018 Most Impressive InnovationBond Connect
2017 Best Financial Innovative Project by
Shanghai Government
Access to China Bond MarketPhoebe Leung
Senior Vice President, Head of Sales & MarketingBond Connect Company Limited
September 2021
6
47.2
18.6
14.7
7.25.5
4.33.9 3.7
2.4 2.3 2.50.9 1.0 0.9
226%
126%
291%
265%
213%
113%
222%
207%
264%
181%
159%
243%257%
0%
100%
200%
300%
400%
0.0
10.0
20.0
30.0
40.0
50.0
UnitedStates
China Japan UnitedKingdom
France Germany Canada Italy Netherlands Spain Australia Luxembourg Ireland Denmark
Debt Securities Outstanding End of 2020 (USD tn)
▪ 2nd Largest Economy▪ 2nd Largest Bond Market with 19.6% CAGR
China—Too Big to be Ignored
USD (tn)
0
5
10
15
20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: WIND, IMF, BIS, The World Bank
Debt Securities Outstanding/GDP (%)
China Bond Market— An Awakening Dragon
7Source: WIND, CBRC, IMF, SIFMA, BIS
Evolution of China Fixed Income Market & Foreign Participation
Fast Growing International Participation
A Road from 2% to 15% Target
HOW It Is Achieved
• Disintermediation— From heavy reliance on traditional banking channels to Debt & Equity markets
• Enhancement of trading & volatility of China Fixed Income Market
• Bridging China Fixed Income Trading (RMB derivatives) to international market standard
• Technological development
• Municipal bond market development & local debt repricing
• Credit repricing & differentiation
• Buy-side development
WHY Introduce International Participation
PBOC TARGET: 15%
Enhancements via—• China Access Schemes Enhancements• Bond Connect-Ease of entry in DM Model Nominee
Account Structure• Index inclusion• Hedging Tools Enhancements-OTC Derivatives Repo
Bond Index• Credit & LGFV Access
FOREIGN HOLDINGS
<2%
FOREIGN HOLDINGS
3.4%
2.32
2.562.69
2.862.86
3.41
2.43
2.78
3.04
3.213.27
3.60
2.753.01
3.33
3.563.62
2.72
3.07
3.43
3.70 3.78
0.00
1.00
2.00
3.00
4.00
1 yr 3 yr 5 yr 7 yr 10yr 30yr
Yie
ld
(%)
CGB CDB EXIM & ADB AAA+ AAA
CIBM Yield Curves
China Interbank Yield Curves— Value Proposition
2.252.32
2.552.62 2.66
2
2.4
2.8
3.2
1m 3m 6m 9m 1yr
Yie
ld (
%)
NCD Yield Curve (AAA)
2.392.54
2.682.87 2.86 2.97
3.41
-1.50
-0.50
0.50
1.50
2.50
3.50
4.50
2 Year 3 Year 5 Year 7 Year 10 Year 15 Year 30 Year
Yie
ld
(%)
United States United Kingdom France
Germany Japan Australia
South Korea China
Global Govi Valuation Comparison
Source: WIND, Bloomberg as of September 8th, 20218
China
Interbank Bond Market (CIBM) Exchange Bond Market
Trading System CFETS Shanghai / Shenzhen Stock Exchange
Bond Types Traded
• Government bonds• Policy bank bonds• PBoC bills• NCDs• SCPs, CPs & MTNs• Dual-listed enterprise bonds• ABS
• Government bonds• Dual-listed enterprise bonds• Corporate bonds• Convertible bonds• SME PPN
Settlement Cycle Up to T+N electronification via Tradeweb & Bloomberg T+1
Trading HoursMonday to Friday 09:00-12:00; 13:30-20:00 (T+0 notapplicable during 16:30-20:00) Monday to Friday 09:30-11:30, 13:00-15:00
Permitted Investor Participants All types of institutional investors Insurance, securities, funds, listed banks, individuals
Regulators PBoC, NDRC, MoF CSRC
Bond Connect Provides Access to Interbank Bond Market
30,000+ Tradable BondsLiquidity, Size, Broad Product Spectrum
The Interbank and Exchange Bond Markets
Source: CSDC, WIND
15.1 (13%)
107.2 (87%)
0 20 40 60 80 100 120
Exchange Market
Interbank Bond Market
Amount Outstandig (RMB tn)
9
10
Key Bond Types in China Bond Market
Source: WIND
Bond Type Market Share Key TenorDaily Trading Volume
(RMB bn)Bid/Ask Spread Market Liquidity
Interbank Exchange
Rates Bonds
Chinese Government Bonds 17.51% 1, 3, 5, 7, 10yr 164.5 1.8 1-2 bps ****Local Government Bonds 22.81% 3, 5, 7, 10yr 47.2 - 5-10 bps *Policy Bank Bonds 15.95% 1, 3, 5, 7, 10yr 308.4 0.4 0.5-2 bps *****Credit Bonds
Certificate of Deposits (NCDs) 10.20% 3m, 6m, 9m, 1yr 166.8 - 5 bps *****
Commercial Paper (CPs / SCPs) 1.85% 6m, 9m, 1yr 37.4 - 4-8 bps ***
Medium-Term Notes (MTNs) 6.34% 3yr - 10yr 43.4 - 5-10 bps ***
Government Supported Bonds 1.46% 5yr - 20yr 1.7 - 3-5 bps **
Corporate & Enterprise Bonds 9.57% 3yr - 15yr 4.9 2.7 5-10 bps **
Financial Bonds 7.89% 2yr - 15yr 38.2 0.7 - *Private Placement (PPN) 1.86% <3yr 10.5 - -
Asset-Backed Securities (ABS) 3.91% 1yr - 30yr 3.4 0.5 -
Convertible & Exchangeable Bonds
0.65% 2yr - 6yr - 55.4 2 points *
Panda Bonds - 1,3,5,7,10yr - - 5-10 bps *
In 4 years, 2876 Bond Connect Investors are onboarded across 730 Entities vs492 Entities for CIBM Agent Model. 78 out of Top 100 Global AM Companies havebeen attracted by the scheme.
• Solid demand of RMB assets among international investors in current globalrates environment during COVID-19
• Total investor count steadily increasing with ongoing RMB internationalizationmeasures, accentuated by progressive benchmark index inclusion of CGBbonds
• Specific rising interest from pension funds, securities, private banks & familyoffices
Rising Impact of Bond Connect as Major Investment Channel
200
600
1000
1400
1800
2200
2600
3000
Q1-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21
CIBM Agent Model Bond Connect
International Investors Accounts Opened(Bond Connect vs CIBM Agent Model) 2876
(+30% YOY)
Source: BCCL as of September 8th, 202111
BC Market Makers
Trading
Settlement
International Investors
Trading Link
Settlement Link
Existing interface
Existing interface
Nominee StructureCMU Members
HKMA
CMU
CCDC & Shanghai Clearing House
CFETS Trading System
Recognized Access
Platforms
Global Custodians
Bond Connect Northbound Operating Model
Bond Connect Onboarding Trend
A Changing & Expanding Investor Base— Jurisdictions
Hong Kong Taiwan SingaporeUnited States of America CaymanBritish Virgin Islands
Macau
United Kingdom AustraliaKorea Dubai Japan
Switzerland Germany
France Malaysia Ireland Bermuda
Luxembourg Canada Philippines
Denmark Belgium Austria
Thailand Netherlands Sweden NewZealand
Abu Dhabi Bahamas
Registration Jurisdictions Breakdown
By Onboarded Financial Institutions
By Financial Institutions/Asset Managers of Funds, Products & Asset Owners
US; 34%
HK; 16%UK;15%
SG; 6%
JP; 5%
LU; 4%
CA; 4%
TW; 2%
GE; 2%
CH; 2%AU; 2% Others; 8%
HK, 33%
US, 15%
UK, 9%SG, 7%
TW, 6%
JP, 6%
AU, 3%
LU, 3%
CA, 2%KR, 2%
CH, 2%
Others, 13%
Italy
Finland RussiaSouth AfricaBrazilNorwayKazakhstan
Russia,
June 2020
Finland, April 2020
Italy, August 2019
Bahamas, July 2019
Abu Dhabi,
June 2019
Japan, June 2017
South Africa November 2020
Brazil
July 2021
Norway,
July 2021
Kazakhstan,
August 2021
Spanning Across 37 Global Jurisdictions
Emerging interests are seen across Central Asia, Middle East, Africa and Latin America & the Caribbean.
Recent Trend
Source: BCCL as of September 8th, 202112
0
5
10
15
20
25
30
35
40
45
50
0
500
1000
1500
2000
2500
3000
Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21
ADT (RMB billion) Approved Investors Traded Accounts
Trading Volume1. RMB 49.61bn (~USD 6.38bn)2. RMB 43.65bn (~USD 5.61bn)3. RMB 42.97bn (~USD 5.53bn)
Out of 2700+ accounts opened
+1500 have now traded (507 Entities)
(21 Apr)(26 May)(21 Jun)
Making History with Record Highs in June 2021
An Explosive Growth in Trading Activities
Momentum is on the rise
This is only the Beginning.
RMB 641.12bn (~USD 82.44bn)RMB 30.53bn (~USD 3.93bn)6407
Total VolumeADT
Total Tickets
League Table
Yearly ADT
Number of Investor
Accounts Opened
Est. 2022
NOWRMB 24.25bn
(~USD 3.75bn)
ADT (RMB bn)
(30 Jul)(30 Nov)(30 Oct)
Trade Tickets1. 7502. 7053. 656
Source: BCCL as of September 8th, 2021
Accelerating Trading Activities via Bond Connect
2018 RMB 3.6bn (~USD 462.9mn)2019 RMB 10.7bn (~USD 1.38bn)2020 RMB 19.8bn (~USD 2.55bn)
13
14
More Coming!Recent Developments
• ePrime – Investor Functionality
• FX Execution Flexibility; enhancements to FX
monitoring and reporting
• Offshore access to Exchange traded products
(ETP) and derivatives such as IRS, repo, etc.
• Expand E-trading platforms
• Develop China Credit Market– index,
securitization, tax netting for securitized
products
• Southbound facilitation
• More to come………
Additional Market Makers (56)
Fee Reduction:0.2bp for 0-1Y, 0.4bp for
beyond
Entity-level Onboarding Dealer Pay Model
Primary Market Information Platform &
NCD Subscription
API Datafeed Service to distribute real-time
transaction data
Trading Hour Extension to 8pm
ePrime underwriter functionality established
Transfer in Defaulted Bond on maturity
Extended Settlement Cycles &
Settlement Amendment
Additional FX Settlement Banks (28)
3rd Party FX
Source: BCCL
Bond Connect Developments — Constantly Evolving Scheme
15
• A Dedicated Website for Bond Connecthttps://www.chinabondconnect.com
• Rules and regulations
• Filing procedures for overseas investors
• Reference materials for trading & settlement of Bond Connect
• List of participating entities of Bond Connect
• Latest updates of Bond Connect scheme
• Contact Us
BCCL Sales & MarketingUnit 4701, 47/F., Two Exchange Square, 8 Connaught Place, Central, Hong KongTel: (+852) 2327 0033Email: [email protected]
• Follow Us
Admission Handbook
For more Information
Deep Dive Into China's Credit Market And Structured Finance
May Zhong
Head of Analytics, S&P Global (China) Ratings
Jerry Fang
Senior Director & Analytical Manager, North Asia (ex. Japan),
Structured Finance Ratings, S&P Global Ratings
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Overview of China’s LGFV and Property Companies
Sep, 2021
May Zhong
Head of Analytics, Managing Director
S&P Global (China) Ratings
• Beijing
• +86-10-6516-6051
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Content
I. Indicative Credit Quality Distribution
II. Overview of China’s LGFVs
III. Overview of China’s Property Companies
18
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19
Indicative Credit Quality Distribution I
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Overview Of China Corporate Bond Market
20
▪ China corporate bond market has grown rapidly, with the issuance amount increasing year on year.
▪ LGFV and property developers account for more than 50% of the market in 2020 by issuer number.
Note: Interest rate bonds mainly refer to government bonds, local government
bonds, policy bank bonds and central bank bills.
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Indicative Credit Quality Distribution Of Our Sampled Corporate Entities
21
▪ According to our recent research, the chart shows the indicative issuer credit quality distribution of about 1,700 entities.
▪ Our desktop analysis is based on public information, using our corporate ratings methodology.
▪ The sampled companies are spread across nearly 20 subsectors in many large industries, and their median indicative issuer credit quality is in [BBBspc]* category.
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Understanding S&P Global (China) Ratings’ Credit Differentiation And Our Rating Scale
22
▪ We observe that the differentiation from the secondary market spread curve indicates domestic investors have already distinguished credit quality among issuers.
▪ S&P Global (China) believes ratings should be comparable across industries, and that high ratings, such as ‘AAAspc’, should demonstrate excellent credit performance over time compared with lower rated entities and lower ratings, such as ‘Bspc’ should demonstrate weaker and more volatile credit performance over time compared with higher rated entities.
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Understanding S&P Global (China) Ratings’ Credit Differentiation And Our Rating Scale
23
▪ From the chart we can observe a broad relationship between the two rating scales, with the indicative credit quality distribution by S&P Global China Ratings of the 143 corporates covering the entire spectrum from [AAAspc] to [Bspc-] and below.
▪ In general, ratings on companies with stronger credit quality may vary more widely on the two scales, while any difference in ratings on entities with weaker credit quality is generally smaller. It should be emphasized that this is based on our observation and is not absolute, and there is no one-to-one mapping between the results of S&P Global (China) Ratings and S&P Global Ratings
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24
Overview of China’s LGFVsII
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Indicative Credit Quality Distribution Of LGFVs
25
▪ According to our recent research, the chart shows the indicative issuer credit quality distribution of top 500 LGFVs by asset.
▪ Their median indicative issuer credit quality is in [BBBspc]* category.
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Indicative Credit Quality Distribution Of LGFVs
26
▪ According to our recent research, the chart shows the indicative issuer credit quality distribution of about 1,800 LGFVs.
▪ Their median indicative issuer credit quality is in [BBspc]* category.
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Overall Issue Amount Of LGFVs Is Increasing
27
▪ The issuance of LGFVs is increasing in recent years, with the among reaching 4.7
Trillion in 2020.
▪ The amount of bonds issued by different provinces varies greatly.
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Some Provinces Show Negative Net Financing
28
▪ Although overall net financing of LGFVs is
positive, different provinces have different
net financing amount.
▪ Net financing amount of some provinces is
positive and large, such as Zhejiang
province. However, Tianjin, Yunnan and
Shaanxi Provinces record negative net
financing.
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Divergence Of LGFV Credit Spread
29
▪ The credit spread of Guizhou is the highest,
which indicates the risk of LGFVs in this
province is high.
▪ The credit spreads of some provinces show
upward trend obviously, because of slow
economic development and heavy debt burden.
▪ The credit spreads of other provinces show
slow downward trend, since these provinces
have strong economy and good fiscal
performance.
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The Purpose Of Bonds Issue Is Mainly Used To Repay Debt
30
▪ Compared with 2020, the proceeds of
bond issuance are mainly used for
refinancing in 2021, since regulator
forbid the creation of new hidden local
government debt.
▪ We expected that the proportion of
Projects purpose bonds would
decrease, offset by increasing special
bonds issued by governments.
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Private Bond Issuance Is Likely To Be Restricted
31
▪ Although non-public offering bonds account
for the largest part of total LGFVs bonds, we
anticipate the proportion of Private
Placements and Private Placement Notes will
decrease in future, since government and
regulator advocate public offering bonds.
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LGFV Summery
On the back of government’s oversight on hidden debt, we have observed the following trends in the LGFV sector:
• Despite increasing issuance amount, it varies among different regions. Some regions experience declining net refinancing and higher spreads.
• The purpose of recent issuance is mainly for refinancing purpose.
• Private placement is likely to decrease.
In summary, credit differentiation is likely to deepen among LGFVs in different regions. Tail end issuers like those from economically weaker regions with higher leverage could face tailwind
32
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33
Overview Of China’s Property CompaniesIII
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34
China’s Property Market Shows Recovery After The Pandemic
▪ The pandemic has a temporary impact on China’s property market. At the beginning of 2020, property sales dropped significantly,but the sector has gradually bounced back from COVID.
▪ Due to low base in 2020, sales maintained a rapid growth over the past half a year. We expect the growth rate to slow down in the second half of the year given current tightening conditions.
▪ We expect China property sales to increase by 5% in 2021.
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Distribution Of Property Developers’ Indicative Credit Quality
35
▪ According to our recent research, the chart shows the indicative credit quality distribution of about 174 property developers.
▪ The sampled developers’ median indicative issuer credit quality is in [BBspc+].
▪ The indicative stand-alone credit quality of developers are relatively low due to the moderately high industry risk and their high financial risk profile.
▪ Some developers with state-owned background may have better indicative issuer credit quality, as they enjoy government or SOE group support and have advantages such as better financial flexibility and access.
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Distribution of Property Developers’ Indicative Business Risk Profile (BRP) & Financial Risk Profile (FRP )
36
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Developers With High Leverage And Tight Liquidity Are More Likely To Face Default Risk
37
▪ In our view, tightened regulation may be of particular concern for highly-leveraged developers facing significant debt maturities. Such developers may struggle to access the funds needed to meet their obligations, heightening the risk of a potential liquidity crisis.
▪ Under the current tight financing environment in China, financial institutions are being particularly cautious amid a spate of recent developer defaults. Such caution has a knock-on effect for developers with weaker credit profiles, increasing their refinancing risk.
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Risks and Opportunities Coexist in China Real Estate Market
▪ In our view, the regulatory oversight of the property sector will maintain. They may fine-tune the policy with the economic development, but the overall condition is expected to remain tight.
▪ The growth rate of the industry will decline, and the sales will remain stable.
▪ In our view, property margins have peaked in China due to rising land prices and caps on selling price, and cost management is becoming increasingly important to developers.
▪ In the medium-to-long term, the overall industry deleveraging is conducive to the improvement of the industry's median credit level.
▪ In the short-to-medium term, the industry may show credit divergence, and credit event may increase amid tight funding conditions.
▪ The overall scale of China real estate market is still huge, the demand of the core urban agglomeration is strong, and the industry’s concentration will continue to increase.
▪ Developers with benign financial leverage, strong cost control and proper strategy execution will benefit from a more stable external environment and increased industry concentration.
38
This report does not constitute a rating action
Deep Dive Into China's Credit Market And Structured Finance
Jerry Fang
Senior Director
S&P Global Ratings, Structured Finance
Sept. 15, 2021
Outline
40
Issuance trend and breakdown
Yield trend (take auto loan ABS as an example)
China Auto Loan ABS | Key characteristics and asset
performance
China RMBS | Key characteristics and asset performance
Overall Issuance Set New Record Every Year
41
– China is the second largest market globally in
terms of securitization issue with CAGR
c.30% in the past few years.
– We expect new issuance to total about
RMB3.6 trillion (US$550 billion) in 2021.
– Auto Loan ABS and RMBS are popular
sectors among offshore investors.
– Securitization transactions are likely to have
more green elements as time goes by, but the
ramp up will be gradual.28.2 28.0
331.0
613.5
881.3
1425.1
2005.7
2340.3
2897.9
1.3 11.4102.6 169.6
301.1485.7
707.7
951.2 963.5
1368.9
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021B
il. R
MB
Securitization Issuance Momentum Continued
Annual Issuance
1H Issuance
C
Note: Including issuance under the credit asset securitization (CAS) scheme managed by the China Banking and Insurance Regulatory Commission (CBIRC) andthe People's Bank of China (PBOC), the securitization scheme managed by the China Securities Regulatory Commission (CSRC), and the asset-backed notes(ABN) scheme managed by China’s National Association of Financial Market Institutional Investors (NAFMII).Source: Chinabond, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
We expect flat-to-single digit issuance growth in 2021 Each active originator sponsored 2-4 issuances each year
Steady Auto Loan ABS Issuance Supported By 10+ Frequent Issuers
42
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
BYD Auto Finance Co. Ltd.
Toyota Motor Finance (China) Co. Ltd.
Tianjin Great Wall Binyin Automotive…
Beijing Hyundai Auto Finance Co. Ltd.
GAC-SOFINCO Automobile Finance Co. Ltd.
SAIC Finance Co. Ltd.
Ford Automotive Finance (China) Ltd.
Fortune Auto Finance Co. Ltd.
Volkswagen Finance (China) Co. Ltd.
Mercedes-Benz Financial
Genius Auto Finance Co. Ltd.
Chery Huiyin Motor Finance Service Co. Ltd.
BMW Automotive Finance (China) Co. Ltd.
SAIC-GMAC Automotive Finance Co. Ltd.
Dongfeng Nissan Finance Co. Ltd.
Number Of Transactions
Number of Auto Loan ABS Transactions By Selective Originator
2016
2017
2018
2019
2020
20211H
Source: Chinabond, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
196.6 194.0
121.5
0
50
100
150
200
250
Auto Loan ABS
Bil.
RM
B
Auto Loan ABS Issuance Over Years
2015
2016
2017
2018
2019
2020
20211H
C
*Consumer loan asset-backed securities issued under the credit asset securitization scheme managed by the China Bankingand Insurance Regulatory Commission and the People's Bank of China. ABS--Asset-backed securities. RMBS--Residentialmortgage-backed securities. CLO--Collateralized debt obligations.Source: Chinabond, Shanghai Clearing House, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
RMBS issuance could fluctuate in 2021 CCB and ICBC sponsored multiple issuances every year
RMBS Issuance Is Mainly Sponsored By Top Mortgage Originators
43
584.3
499.2
424.4
264.3
0
100
200
300
400
500
600
700
RMBS
Bil.
RM
B
RMBS Issuance Over Years
2015
2016
2017
2018
2019
2020
20211H
C
*Consumer loan asset-backed securities issued under the credit asset securitization scheme managed by the China Bankingand Insurance Regulatory Commission and the People's Bank of China. ABS--Asset-backed securities. RMBS--Residentialmortgage-backed securities. CLO--Collateralized debt obligations.Source: Chinabond, Shanghai Clearing House, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74
China CITIC Bank
China Merchants Bank
Bank of China
ICBC
China Construction Bank
Number Of Transactions
China RMBS: Number Of Transaction By Top Bank Originators 201620172018201920202021 1H
Note: Originators with more than one RMBS issuance. Source: Chinabond, WIND; compiled by S&PGlobal Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
Yield Trend | Take Auto Loan ABS As An Example
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
%
Coupons On The Most Senior Tranche Of China Auto Loan ABS
SHIBOR 6months
Coupons OnThe Most SeniorTranche ofChina Auto LoanABS
C
Source: National Interbank Funding Center, Chinabond; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
44
– The right chart shows coupons
hovered between 2.5% and
sub-4% in recent years.
– Coupons have to do with tenor
and liquidity in the market.
In terms of the securitized pools In terms of transaction structure, some of the key features
China Auto Loan ABS | Selective Key Characteristics
• Tens of thoughts of loans; Pools are granular
and well-diversified
• Low loan-to-value
• Short remaining loan tenor
• Mostly fully amortizing loans; some with small
portion of balloon loans
• No borrowers with adverse credit history as of
cut off day
• Most zero or low interest loans; negative carry
risk has been factored in in cash flow testing.
45
• Mostly senior/rated and unrated equity
tranches; some may have mezz tranches.
• Mostly sequential pay structure, with soft
amortization schedule for, e.g., A-1 class.
• Majority are still deals backed by static pools.
Deals with revolving period have increased.
• Notes pays interest at fixed rate.
• Senior most tranches backed by static pools
generally saw WA life between 0.5 and 0.8
years; could be up to a year or longer if
revolving period is adopted.
China Auto Loan ABS | Asset Performance Has Been Largely Stable
46
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
Weighted Average Asset Delinquency Rate Of All Auto Loan ABS Remained Largely Constant
W.A. 31-60days past due(M2)
W.A. 61-90days past due(M3)
W.A. 90+ dayspast due(M4+)
Note: Data as of June 30, 2021. The delinquency rates of the first three months after transactionclose is excluded. ABS --Asset-backed securities. W.A.--Weighted average. Source: Trustee reportspublished on Chinabond's website; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
0.00
0.20
0.40
0.60
0.80
1.00
%
Months after transaction close
Auto Loan ABS Cumulative Default Rate Remained Low
2012
2014
2015
2016
2017
2018
2019
2020
2021
C
Note: Data as of June 30, 2021. The definition of default may be different from deal to deal.Source: Trustee reports published on Chinabond's website; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
Cumulative default rate by annual vintage
In terms of the securitized poolsIn terms of transaction structure we rate, some of the key
features
China RMBS | Selective Key Characteristics
• Tens of thoughts of loans; Pools are granular
and well-diversified
• Low loan-to-value
• Short remaining loan tenor relative to other
markets
• Fully amortizing loans
• No borrowers with adverse credit history as of
cut off day
47
• Pari passu A-1, A-2, A-3, A-4, etc. backed
unrated by equity tranches; some may have
mezz tranches.
• Mostly sequential pay structure with soft
amortization schedule for, e.g., A-1 and A-2
• All are backed by static pools.
• Majority of notes pay LPR (or PBOC lending
rate) based floating rates, with minority pays
interest at fixed rate.
• Transactions’ WA life ranges from 5-7 years.
China RMBS | Asset Performance Has Been Largely Stable
48
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
Jun
-20
Jul-
20
Au
g-2
0
Sep
-20
Oct
-20
No
v-2
0
Dec
-20
Jan
-21
Feb
-21
Mar
-21
Ap
r-2
1
May
-21
Jun
-21
Delinquency Trend For The RMBS We Rate
W.A. 31-60days pastdue (M2)(right scale)
W.A. 61-90days pastdue (M3)(right scale)
W.A. 90+days pastdue (M4+)(right scale)
W.A. 1-30days pastdue (M1)(left scale)
Note: Transactions closed in the past 2 months or so are not included. RMBS --Residential mortgage-backed securities. W.A. --Weighted average. Source: Trustee reports published on Chinabond's website;compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
0.00
0.20
0.40
0.60
0.80
1.00
%
Months after transaction close
Bank-Sponsored RMBS' Cumulative Default Rate Rose Slightly
2014
2015
2016
2017
2018
2019
2020
2021
C
Note: Data as of June 30, 2021. The definition of default may be different from deal to deal. Number of transactions in 2014 and2015 vintages were less than 10 transactions.Source: Trustee reports published on Chinabond's website; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.
Cumulative default rate by annual vintage
Various Types Of Research Articles Are Available To Help Investors
49
China Structured Finance Annual Outlook China Auto ABS And RMBS Monthly TrackerChina Securitization Quarterly Performance
Watch
A Primer on China’s RMBS Market Cross market comparison Timely Commentaries On Major Events
A Future Track To Primary
Benton Wong
Vice President, Sales & Marketing, Bond Connect Company Limited
51
To further complement the Northbound access, BCCL is delighted to provide a digital platform to access the onshore primary market in the near future, introducing a more efficient, transparent, informative subscription mechanism to the internationalinvestors
• Why is it important to international investors?
• Opens up opportunities
• Potentially better clip size & yield,
• Access to wider selections of bonds and liquidity pool
• Better penetration with underwriters in the domestic market
• Direct control over the onshore primary market participation
• Allows you to take part in the entire primary auction process directly instead of relying on alternative means
• Participate under a transparent and standard subscription framework
• Digitalized workflow free from manual paperwork
• Subscription workflow on ePrime - how does it work?
Bond Connect ePrimeA Prospective Northbound Primary Market Access
52
Rep, Trader
Offshore Investor 1 Offshore Investor 2 Offshore Investor 3
OnshoreUnderwriter 2
Rep, TraderRep, Trader
OnshoreUnderwriter 1
OnshoreUnderwriter 3
ePrime sets the foundation for the crossborder primary market innovations
• Online cross boarder communication tool between offshore investors and onshore underwriters and issuers
• Standardization of the onshore bond subscription procedures
Establish Counterparty Relationship
Check Deal Information
OrderManagement
See BiddingResults
Allocation Confirmation
CompletedDeals
Bond Connect ePrimeNorthbound Investor Subscription Mechanism (TBC)
53
Feedback/Comments welcomed!
How is the subscription process in the China
onshore market different from offshore?
What are the best practices
in using the platform?
What kind of information would
be available?
Who are the onshore underwriters I should connect with? What are their strengths?
How to get access?
Bond Connect ePrimeWhat’s Next?
54
Panel Discussion:Development Of Green Bond Market In China & Prospects Of Sustainable Investing
Brad Gibson
Co-Head of Asia Pacific Fixed Income,
AllianceBernstein
Shan He
Deputy Director, Treasury and Financial Management
Center,
China Three Gorges Corporation
Daming Cheng
Member of CICC’s IBD Business Development Committee,
Managing Director,
China International Capital Corporation Limited
Moderator:
Submit your questions via the Q&A box
on the right-hand side of your screen
Erik Christianto
Director, ESG Product Specialist,
S&P Global Ratings
Jing WenDeputy Chief Manager, Investment Banking Department,China Construction Bank Corporation
Thank You For Attending
S&P Global Ratings & BCCL Virtual Seminar 2021: Demystifying China Credits
56
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