GlobalCapital, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

BoCom to become China’s second credit card ABS issuer


China’s growing securitization market is set for another boost with Bank of Communications (BoCom) poised to become the country’s second issuer of credit card ABS.

Chinese ABS, which is still in the early stage of development since its revival around four years ago, has continued to make inroads this year, even though volumes have stagnated as a result of the country’s economic concerns.

China boasts a far more diverse ABS market compared to a year ago after the introduction of consumer loan ABS, margin loan ABS, SME loan ABS and urban renewal-linked ABS.

And the bigger product mix is set to continue after BoCom launched a Rmb5bn ($788m) credit card ABS this week. Jiaoyuan 2015-1 credit card ABS consists of three portions, a Rmb4.27bn ($671m) senior ‘A’ tranche, a Rmb505m ‘B’ tranche and a Rmb252m subordinated slice that the firm will retain.

Bookrunner and lead main underwriter Haitong Securities will be marketing the ‘A’ piece at an indicative range of 3%-4% and the ‘B’ tranche at 3.8%-4.8% on November 2.

But unlike typical credit card ABS seen overseas, BoCom will only be securitizing credit card instalment payments instead of credit card receivables. China Merchants Bank, the first in the country to securitize credit card assets, also securitized credit card instalments with its CMB 2014-1 and CMB 2015-2 transactions.


One Hong Kong-based structured finance analyst said the use of instalments comes because China’s ABS market is still very young and securitizing revolving debt such as credit card receivables might be a step too far.

“The cash flow for credit card instalments is very easy to predict unlike revolving debt securitization, which contains a lot more variables,” he said. “It’s always sensible to start with the easier ones first although I suspect they will eventually make the step to securitizing revolving debt soon.”

His prediction is based on the fact that the National Association of Financial Market Institutional Investors (Nafmii) recently rolled out a disclosure framework for consumer loan ABS. While the rules only cover non-revolving debt, Nafmii did say that a framework for revolving debt is in the works.

The analyst said interest in consumer-related ABS is strong in China given that consumption spending is one of the few areas that is holding up well.

“Even though the country’s growth is slowing, consumer spending has gone up and that’s one of the themes investors want to invest in China right now,” he said.

China’s economic growth for the third quarter has gone down to 6.9% whereas consumer spending has gone up to 10.9%, according to the National Bureau of Statistics of China.

Diverse portfolio

For Jiaoyuan 2015-1, the 433,573 loans are spread across 31 provinces, which according to a report from domestic agency China Chengxin International Credit Rating, makes it one of the most diverse portfolios it has rated.

The agency said that the ‘A’ tranche in particular benefits from a good amount of credit enhancement (15.08%) derived from the ‘B’ and subordinated pieces.

In addition, BoCom’s credit card business is also one of the better managed ones in the country with a bad loan ratio of just 1.67% as of December 31, 2014. This contributes to the AAA and AA ratings Chengxin has given to the ‘A’ and ‘B’ portions, respectively.

A second domestic agency, China Credit Rating, has also given the transaction the same ratings. China Credit said the high ratings were based on the asset pool’s short weighted average remaining maturity of just 13.86 months and the fact that the weighted average income/debt ratio is at a high 6.32 times.  

Both the ‘A’ and ‘B’ portions have a final maturity of May 2019, although the former has an expected maturity of July 2016, one month earlier than the latter.

ICBC is a main underwriter on the transaction. Other underwriters include China Construction Bank, China Minsheng Bank, China Merchants Securities, Essence Securities, First Capital Securities, Guosen Securities, HSBC China and Huarong Securities.