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SAIC-GMAC ABS sticks to the middle lane

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By Rev Hui
10 Sep 2015

Auto finance companies are taking the Chinese ABS market by storm this year with SAIC-GMAC adding to the surging volumes with a Rmb3bn ($471m) transaction this week. Even though pricing came just slightly above the middle of guidance, bankers on the trade said it was a level the company was more than happy to take.

SAIC-GMAC is no stranger to the ABS market having raised Rmb4bn with its Rongteng 2015-1 Retail Auto Loan Securitization less than three months ago. The auto finance company, though, was keen to keep the momentum going.

Rongteng 2015-2 had more or less the same structure and asset pool characteristics, with the loans spread across 31 provinces with a weighted average life (WAL) of 0.92 years. The loans in the previous trade were across 30 provinces with a WAL of 0.78 years.

What was different, however, was the market backdrop. The deal’s announcement last month coincided with one of the worst stock market routs in recent years as fears over a worsening Chinese economy spilled over globally. 

Only an Rmb2.7bn senior tranche was being offered to investors, with the company retaining the remaining Rmb300m junior subordinated piece. The Aa3 (sf) rated senior floater was marketed at minus 0.35% to minus 1.35% over the People’s Bank of China’s one year lending rate.

Having to navigate such a volatile market, lead underwriter Citic Securities unsurprisingly only managed to fix pricing on September 9 at minus 0.95% over, or slightly above the mid-point of guidance.

“Markets were obviously very difficult, but even then we managed to price at the tighter end of the price range, which I thought was a very good result,” said a structured finance specialist on the transaction.

The specialist added that it was clear to everyone involved that pricing right at the tight end was always going to be impossible given the shaky conditions, but also because of the PBoC’s decision to cut interest rates by 25bp at the end of August.

“When the deal was announced, the reference rate was 4.85%. But by the time we priced, it was 4.6%,” he said. “It was 25bp cheaper for the company just like that and investors made it clear that they will not support the deal if pricing had come any tighter.”

Final pricing translates to a coupon of 3.65%, which was slightly higher than the 3.5% on the Rmb3.58bn senior tranche of Rongteng 2015-1.

That, however, was not a problem for theissuer, since almost every single deal in the credit market in recent weeks had come at a concession, the banker added.

Auto finance companies in China, in particular, are also starved of a viable funding channel as the only other source available is bank loans — something they are keen to diversify away from.

Bank of China and China Citic Bank acted as co-lead underwriters. Citi Orient Securities was deputy lead underwriter while DBS and Mizuho were financial advisers.

The transaction has a final legal maturity of October 2021, while the senior tranche has an expected maturity date of August 2017. Some 50,830 loans were put into the static pool.

By Rev Hui
10 Sep 2015