Unlike the broader ABS market, which reopened in 2011-2012, the securitization of auto loans has had an even shorter history with the first deals only appearing in the middle of 2014.
But the nascent product has matured quickly not only in terms of volumes, but also structurally as it remains one of the very few asset classes to sport international ratings in the domestic Chinese market.
The Rongteng 2015-2 Retail Auto Loan Securitization continues that trend with the senior Rmb2.7bn portion given an Aa3 (sf) rating by Moody’s. Domestic agencies China Lianhe Credit Rating and China Credit Rating both rate the same portion AAA.
There is also a junior Rmb300m piece included in the transaction although that is unrated and will be kept on the originator’s books.
Lead underwriter Citic Securities will be marketing the senior tranche at -0.35% to -1.35% over the People’s Bank of China’s one year lending rate, which is 4.85%. This translates to a 3.5% coupon at the tight end of the range, which is identical to the Rmb3.58bn senior tranche of Rongteng 2015-1 issued just two months earlier.
SAIC-GMAC is planning to put 50,830 auto loans into a static pool, which is less granular than the 72,225 it put into Rongteng 2015-1. However, that is still a lot more than some of the other auto loan ABS around such as Dongfeng Nissan’s VINZ 2015-1 issued two weeks ago.That Rmb1.5bn trade contained 27,088 loans.
The characteristics of the new deal are also more or less the same as Rongteng 2015-1 with the loans spread across 31 provinces with a weighted average life (WAL) of 0.92 years. The loans in the previous trade were from 30 provinces with a WAL of 0.78 years.
Bookbuilding has been scheduled for September 8 with Bank of China and China Citic Bank acting as co-lead underwriters. Citi Orient Securities is deputy lead underwriter while DBS and Mizuho are financial advisers.
The transaction has a final legal maturity of October 2021, while the senior tranche has an expected maturity date of August 2017.
Surging volumes
Auto finance companies have securitized a combined Rmb11bn worth of assets this year, which is already close to three times the Rmb4bn raised in the whole of 2014, according to Dealogic.
The surge in volumes is down to a switch to a pre-filing system this year that means auto loan originators need only to register a securitization programme with the China Banking Regulatory Commission (CBRC) in order to issue,
This is akin to a MTN programme that is commonly seen in bonds where only one set of documentation is needed. The programme comes with a maximum size and issuers can choose to draw the entire amount in one shot or spread it over several issues. Previously, originators were required to apply for every new issuance with approval usually taking around three to four months.
The new system has helped speed up the process for auto loan ABS and securitization bankers are expecting the asset class to go from strength to strength.
“Demand for auto loans is very high in China but before the opening of the ABS market, the only way for these companies to raise capital to expand their business was mainly through loans,” said a structured finance specialist in Hong Kong.
While they could in theory issue bonds through the domestic interbank market, the CBRC has rarely approved such issuance. Coincidentally, SAIC-GMAC is the only auto finance company to have issued a bond in the past five years, raising Rmb1.5bn way back in 2010.
“These guys can’t keep drawing from their credit lines with the banks all the time and for some reason, the bond market is shut for them as well. That is why so many have turned to securitization for funding instead,” the Hong Kong banker said.
The domestic auto finance companies aside, international names such as BMW, Ford, Nissan and Volkswagen have all filed to issue Rmb10bn-Rmb12bn each in the next two years.