Recently, the epidemic in Shenzhen has been up and down. All the information tells us to go out less and rest more, not to get lost in the material environment outside, but to enrich our spiritual world at home. Now is the opportunity!

On June 23, 2021, Mr. Zhang Jing, Chairman of Qianhai Clearing Factoring, was invited to participate in the theme sharing of the 22nd Public Lecture on Commercial Factoring and Supply Chain Finance hosted by the Factoring Association, during which Mr. Zhang Jing analyzed corporate asset securitization and innovative models.

Zhang Jing derived various types of product transaction structures from the concept and origin of asset securitization and different transaction scenarios in the upstream and downstream of the industrial chain. She mainly explained the current mainstream supply chain accounts payable asset securitization, the innovative 1+N+N guarantee model, the trust non-standard to standard, and the ABS/ABN model, and conducted a detailed analysis and comparison of the transaction structure, transaction process, and business model of various types of products.

Supply chain financial asset securitization relies on core enterprises and real trade foundations, takes advantage of the core enterprise qualifications, integrates upstream and downstream resource advantages, solves the financing needs of upstream and downstream small and medium-sized enterprises, revitalizes the accounts receivable of small and medium-sized enterprises, improves turnover rates, and speeds up capital recovery, thereby promoting the healthy development of enterprises in the supply chain.

Supply chain finance asset securitization is a model innovation with accounts receivable as the core asset. It has developed rapidly in recent years, is favored by financiers, and has received more and more attention. So what conditions must be met to issue supply chain finance ABS? What are the relationships between the various issuing entities? Is the issuance process complicated? Zhang Jing spent nearly two hours giving a detailed explanation to the online audience.

There is no essential difference in structure between ABS and ABN. They are mainly divided into different trading venues. ABS is the exchange, ABN is the Interbank Exchange Association, factoring companies are the original beneficiaries and asset service institutions, securities firms or banks or trusts are the managers and underwriters, and other intermediary institutions include law firms, rating agencies, etc., then the structure of the entire product is established.

ABS full process diagram

To determine whether a product can be finally implemented, Zhang Jing believes that the following two points need to be focused on:

(1) Core enterprise qualifications: Generally, for successful issuances, the corporate rating is AA+ or above. Although the current regulatory authorities also allow the application of AA, in terms of final sales, the AA+ rating is easier to achieve.

(2) Underlying assets: The underlying assets should be clearly defined, compliant with regulations, authentic and valid, and transferable without restrictions. The proportion of related-party transactions should be kept at around 30% as much as possible. If the underlying assets involve payables of the core enterprise supply chain, etc., the asset pool should include at least 10 creditors that are not related to each other and whose debtors are in good credit status.

2. Innovative Products

All of our financial product innovations must embrace supervision and be based on the needs of enterprises and the market. On May 8, 2020, the China Banking and Insurance Regulatory Commission issued the "Interim Measures for the Administration of Trust Funds of Trust Companies (Draft for Comments)", which has two major concerns:

(1) Non-standard trust assets to standard assets

① The total amount of non-standardized debt assets invested by all collective fund trust plans managed by a trust company in the same financier and its affiliates shall not exceed 30% of the trust company's net assets, which limits the concentration of non-standard debts;

② The total amount of loans provided to others or investments in other non-standardized debt assets by all collective fund trust plans managed by the trust company shall not exceed 50% of the total paid-in trust of all collective fund trust plans at any time, which limits the proportion of investment in non-standard debt assets;

③. Asset securitization of non-standard assets to standard assets is currently the most effective and fastest solution to meet the "30% + 50%" requirement. Of course, due to the current regulatory requirements, non-standard assets to standard assets are difficult to implement. The regulatory agency's requirements for the dispersion of underlying assets make actual sales difficult. How this business will develop is expected to be guided by future policies.

(2) Consolidated ABS/ABN

①. Consolidated ABS/ABN: The main advantage is to optimize debt structure and reduce corporate debt. According to the State Council's "Guiding Opinions on Strengthening Asset-Liability Constraints of State-owned Enterprises" and "Key Points for Reducing Corporate Leverage Ratios in 2018", it is clearly stated that state-owned enterprise groups and subsidiaries should reduce debt ("the average asset-liability ratio should be reduced by about 2 percentage points by the end of 2020 compared with 2017"), reduce "two funds" (funds occupied by accounts receivable and deposits), and optimize the structure. In order to meet the above requirements, the consolidated ABS/ABN model is used to help high-quality state-owned enterprises achieve the goals of optimizing debt structure and revitalizing existing assets;

②. Consolidated ABN/ABS business refers to standardized asset securitization products issued with the LP shares of consolidated funds as underlying assets. By gaining control of consolidated funds, enterprises can achieve low-cost financing to replace existing interest-bearing debts without increasing their debt ratios, thereby meeting the deleveraging needs of state-owned enterprise groups and their subsidiaries.

Conclusion

Finally, Zhang Jing summarized the three advantages of the ABS/ABN business model based on the innovative financial model of Qianhai Settlement:

First, it promotes the healthy development of the industrial chain, broadens the financing channels for small and medium-sized enterprises, enables them to obtain relatively low-cost financing, and improves the efficiency of supply chain circulation;

Second, it improves the capital turnover rate of core enterprises, which helps enterprises improve operating cash flow and reduce interest-bearing liabilities;

The third is to reduce business costs and risks and achieve optimal allocation of overall industry resources.

Qianhai Clearing Commercial Factoring (Shenzhen) Co., Ltd.

Qianhai Clearing Commercial Factoring (Shenzhen) Co., Ltd. has rich experience in the field of ABN/ABS issuance. At present, it has basically realized the factoring business model of "professional service output" and "technology output", and built a safe, efficient, interconnected technology network to provide enterprises with precise services and technological support. It provides professional factoring services nationwide, and based on the commercial credit of core enterprises (accounts payable), it provides customers (accounts receivable) with factoring services that integrate trade financing, sales sub-account management, accounts receivable management, and customer credit investigation and evaluation.