World

Wednesday 30 July 2014

Citic plans China's first real-estate securitisation

Lu Jianxin and Pete Sweeney

Published 03/10/2013|04:00

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The Beijing skyline. The Chinese Government has shifted its focus to optimise existing assets to cut reliance on state investment

CITIC Securities said it plans to sell some primary properties to raise at least five billion yuan (€604m) to consolidate its capital base in China's first real- estate securitisation.

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In a statement in the official 'Shanghai Securities News', China's largest brokerage said there will be a three-step securitisation process.

The company will first transfer rights for two buildings in Beijing and Shenzhen and rights to related land parcels from two units in Tianjin.

Then, it will sell all stakes in its Tianjin units to its fund unit, Citic Jinshi Fund Management Co, for at least five billion yuan.

The brokerage will then rent offices in the buildings to operate, it said, adding that the plan will be submitted to shareholders for approval.

Citic Securities said that if the securitisation succeeds, it stands to get stable income from the fund unit, which will launch a private equity fund for "special innovative financial businesses". The brokerage gave no details.

China's State Council, or cabinet, said in late August that the country would expand a pilot programme to let companies securitise assets.

The central bank also announced details on the reform to let firms, in particular financial institutions including banks, sell asset-backed securities (ABS).

Agricultural Development Bank of China, one of China's three policy banks which lend in line with government decrees, completed its first-ever sale of ABS last week.

Only about 32bn yuan (€3.8bn) in securitised products were outstanding in China at the end of June, according to calculations based on data from three Chinese securities clearing houses.

That compares with more than 56 trillion yuan in commercial bank loans, 27 trillion yuan in bonds and 4.2 trillion yuan in trust loans that are often packaged into wealth management products.

Official moves to scale up securitisation come as the government has shifted its focus to optimise existing assets as part of efforts to improve the structure of the world's second-largest economy and cut reliance on state investment.

China's broad M2 money supply exceeded 100 trillion yuan for the first time in March and reached 106 trillion yuan by the end of August, causing widespread worries over excessive supply that could fan inflation, asset bubbles and over-investment.

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