Securities Offering Takes Aim at Bad Home Loans
(Beijing) — China's first asset-backed securities (ABS) for home mortgages were scheduled to be offered Friday by China Construction Bank (CCB) through a pilot project aimed at diversifying the nation's debt market.
CCB said it planned to sell 1.56 billion yuan ($233 million) worth of five-year notes on China's interbank bond market.
The notes to be offered to domestic institutional investors would help CCB manage a pool of non-performing personal mortgages that a subsidiary, CCB Trust Co., said was worth 29.9 billion yuan in early July. The pool includes 7,980 bad loans to home buyers in 82 cities nationwide, the trust said.
Nearly 12 percent of the bad mortgages in the pool for the ABS fundraiser were issued by CCB to buyers in Xi'an, the capital of northwestern China's Shaanxi province, the trust said. Bad loans in the nearby city of Yulin comprise 8.7 percent of the pool.
Mortgages issued in Ordos, in the Inner Mongolia autonomous region, are also included in the pool.
The slowdown of China's coal industry has hurt the respective economies of Shaanxi and Inner Mongolia.
CCB's pool also includes unpaid mortgages for homes bought in the cities of Chongqing, Chengdu and Dalian. Some bad loans have been linked to real estate speculation.
CCB is the fourth state-owned bank to announce an ABS project since May, when the People's Bank of China launched a pilot program designed to help lenders manage non-performing loans. The program, a revival of a similar one that ended in 2008, involves six major banks.
According to the central bank, the nation's banks were saddled with 513 billion yuan worth of unpaid personal loans at the end of 2015.
Bank of China became the first lender to offer ABS notes in May, raising 301 million yuan for corporate debt. China Merchants Bank issued 233 million yuan worth of notes for credit card loans later in May, followed by Agricultural Bank of China in July.
Additional ABS programs are expected to be announced by the end of this year by Industrial and Commercial Bank of China and the Bank of Communications.
Nearly 77 percent of the offered CCB notes are senior assets rated AAA by China Bond Rating Co. and China Lianhe Credit Rating Co., the trust said.
Lianhe estimated the gross recovery rate for the mortgages will be 81.59 percent, with more than 2.44 billion yuan of the capital recovered. China Bond estimated a recovery rate of 80.94 percent that will rein in up to 2.42 billion yuan.
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