Liu Ming
Since 2007 when China Banking Regulatory Commission (CBRC) once again permitted domestic commercial banks to involve in financial leasing business and establish financial leasing companies, financial leasing companies, as the main body of the financial leasing industry, have been developing with eye-catching results; meanwhile, how financial leasing companies have broken financing bottleneck in numerous ways has attracted great attention from within the industry.
Capital pressure that require imperative solution
China's modern leasing industry began in the early 1980s. After 30 years' development, it has developed considerable volume. Still, its market penetration rate is merely 4 to 5 percent, lagging greatly behind that of 15 to 30 percent in developed countries.
Regarding the development volume of China's financial leasing companies, according to statistics from China Banking Regulatory Commission, as of the end of the third quarter of 2012, there were 19 registered financial leasing companies in operation across China, 2 more than the number last year.
The majority of financing leasing companies' existing capital comes from short-term loans from banks. According to Gu Xiaoqing, with the Research Department of National Association of Financial Market Institution Investors (NAFMII), short-term loans from banks account for more than 90 percent of the external capital source of financing leasing companies.
In terms of capital use of financial leasing companies, pursuant to relevant rules and regulations, the operation lever, namely the ratio between the total volume of risk assets and net assets, of CBRC's financial leasing companies is 12.5. According to statistics from the Financial Leasing Commission of NAFMII, as of the end of the third quarter of 2012, paid-in capital of the 19 financial leasing companies was RMB 61.189 billion Yuan, and their total assets were RMB 730.193 billion Yuan, 12 times that of paid-in capital.
The financing leasing industry is a typical capital-intensive industry. Its development requires large amount of external capital. Currently, capital of China's financing leasing companies comes mainly from self-owned funds, shareholders' capital increase, bank loans, and inter-bank borrowing. When financing leasing companies develop to certain size, they need to increase capital fund or sell existing business to develop new business.
Bond financing, convenient and efficient
Bond financing and leasing assets securitization have always been the channels of the capital source of financial leasing companies.
China Cinda Asset Management CO., LTD recently issued RMB 10 billion Yuan financing bonds in the inter-bank bond market. This is the first issuance of financial bond by a financial asset management company as an issuing body. In this issuance, 3-year bond and 5-year bond each accounts for RMB 5 billion Yuan, with the stated interest rate of the 3-year bond being 4.35 percent and that of the 5-year bond being 4.65 percent. The capital raised will be used to strengthen effort to purchase financial and non-financial bad assets.
According to Gu Xiaoqing, as financial assets management companies develop rapidly in scale and expand in scope, particularly after regulatory departments allowed them to purchase bad assets of non-financial enterprises and encourage them to take part in equity investment, the capital shortage problem of assets management companies began to stand out. In the current economic and financial environment, issuing bond is a more convenient and efficient solution than IPO and bank loan. The first AMC financial bond not only increases the variety of bonds in the inter-bank bond market, but also helps to improve the sustained profitability of assets management companies and optimizes asset bond structure.
As for the result of the issuance, the first AMC financial bond has been well accepted by market participants. Its major credit rating and bond rating are both AAA, and its issuing interest is lower than that of AAA or even key AAA mid-term notes of the same period.
According to Chen Shan from the Research Department of NAMFII, currently the financing of financial leasing companies concentrates on short-term means. However, leasing projects tend to be medium-to long-term, which means there is a severe disparity in the maturity structure of assets and liabilities. For financial leasing companies, issuing bonds can help to increase the proportion of medium- to long-term capital and improve fluidity management. So, in order to mitigate the difficulty of financing, particularly long-term capital source, issuing bond has become a financing channel that financial leasing companies had been fighting vigorously for, but it wasn't substantially realized until 2010. In the past two years, China Huarong Financial Leasing, Bank of Communication Financial Leasing, and Jiangsu Financial Leasing have issued financing bonds in the inter-bank bond market one after another, and the terms of maturity of the bonds tend to be 3 to 5 years.
Leasing assets securitization kicked off
Compared to the slow pace of bond financing, assets securitization had to be put on wait for financial leasing companies since the eruption of the international financial crisis.
The ICBC Financial Specialized Assets Management Program, the first approved asset-backed securities product of China's financial leasing enterprises, has recently been approved by China Securities Regulatory Commission. The prioritized volume of the product is RMB 1.6 billion Yuan, with weighted average term of 1.36 years and bond rating of AAA. This indicates the official kick-off of the asset securitization of financial leasing companies.
In the view of Gu Xiaoqing, the asset volume of China's financial leasing companies will exceed RMB 700 billion Yuan within 5 years, and the financial channel problem need to be tackled first for further business expansion. Making good use of idle assets is a possible channel for leasing companies, but China's ABS had been in stagnation since the outburst of the international financial crisis, and was restarted in May this year. Since the restart of ABC, there has been a richer variety of products and they show positive signs of developing in depth. ICBC's leasing business' being allowed to issue ABS means a great step forward of channel expansion of China's financial leasing; it also means that ABS is being tested on a wider scale. The volume expansion of ABS will provide more support to the construction of China's major infrastructures, including aviation, shipping, and rail transportation.
In the views of industrial experts, leasing assets securitization has the function of direct financing, and is able to help enterprises reduce financing pressure and expand their financing channels. Leasing companies can convert leasing assets, or creditor's rights, that are capable of generating large amount of stead cash flow into securities that can be sold and circulate in the financial market, directly connecting the end users of capital and the capital providers and saving the financing cost of leasing companies to a great extent.
For financial leasing companies, leasing asset securitization can effectively reduce their capital pressure, and under mature asset securitization model, securitized leasing assets can "really be sold" by leasing companies, reducing the asset volume of leasing companies, leaving space for new leasing business, and serving the real economy in a dynamic way.
