BNP Paribas hitches a ride with BMW into China’s domestic ABN market

BNP Paribas has become the first foreign bank to act as a Joint Lead Underwriter in the Chinese Asset Backed Notes market.

This article is also available in Simplified Chinese.

As China’s onshore debt market, now the world’s second biggest, continues to grow, BNP Paribas has forged yet another first, this time becoming the first foreign bank to act as a Joint Lead Underwriter in the Asset Backed Notes (ABN) market for a Chinese corporate. This ground-breaking deal highlights the bank’s unique position as one of only two foreign banks able to underwrite securitisations for domestic corporate players in a rapidly expanding market. 

The deal with Herald Financial Leasing Company, a domestic Chinese unit of Germany’s BMW Group, involved the securitisation of RMB 3bn (USD461m) worth of Auto Lease Asset Backed Notes (ABN). BNP Paribas has a strong foothold in the Chinese automotive market. The bank has also done a number of ABS transactions with Herald’s affiliate company BMW Automotive Finance (China) Co., Ltd., which operates in China as a locally incorporated financial institution.

Chinese asset-backed notes: a brief explainer

Securitisation simply means taking a cash-generating asset and turning it into a marketable security that investors can buy and sell. The assets in question are generally loans that guarantee future payments or cash flows. Car loans and leases, residential mortgages, credit card receivables and student loans are all types of assets that can be securitised. ABN is traded in the China Interbank Bond Market (CIBM) and regulated by the National Association of Financial Market Institutional Investors (NAFMII).  In China, financial institutions are securitising through the credit asset securitization market regulated by the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC); while the ABN market is for non-financial institutions and corporates.

ABN is traded in the China Interbank Bond Market (CIBM) and regulated by the National Association of Financial Market Institutional Investors (NAFMII).  In China, financial institutions are securitising through the credit asset securitization market regulated by the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC); while the ABN market is for non-financial institutions and corporates.

The ABN market is growing very fast with new issuance volume increasing from RMB 126bn in 2018 to RMB 289bn in 2019 and RMB 511bn (approx. USD 79bn) in 2020. It is becoming an important funding tool for corporates in China*.

Making inroads

BNP Paribas was one of the first two banks to be awarded a Type A corporate bond underwriting license from China’s NAFMII in 2019, allowing it to act as a lead underwriter on all kinds of bonds in the interbank market, including asset-backed notes, for Chinese domestic, as well as international, companies.

“We are one of just two foreign banks with the Type A license in China today, and the first to actually use it in a transaction to support a Chinese domestic player’s securitisation needs. We are glad that we can now extend our scope of business to include corporate securitisations in China” explained Andy Lai, Head of Asset Finance & Securitisation, Asia Pacific, BNP Paribas.

We are one of just two foreign banks with the Type A license in China today, and the first to actually use it in a transaction to support a Chinese domestic player’s securitisation needs. We are glad that we can now extend our scope of business to include corporate securitisations in China

Andy Lai, Head of Asset Finance & Securitisation, Asia Pacific, BNP Paribas

While China’s domestic banks are also capable of acting as Joint Lead Underwriters for onshore deals, Lai explained that international banks like BNP Paribas can provide lots of value-add for Chinese companies like Herald Financial Leasing, which has strong links with BMW.

“International companies like BMW prefer to maintain a degree of consistency across their financing arrangements, and their investors appreciate that no matter where the deal is executed, the global standards remain the same,” said Lai.

“As a bank with global reach and expertise, we’re well placed to help our multinational corporate (MNC) clients. We understand their structural requirements globally and we are familiar with the local and international ratings agencies who rate the deal. Our deep knowledge of international markets is an important differentiator between us and the domestic Chinese banks.”

*Source: www.cn-abs.com   

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