The Master Trust Structure: A Structural Innovation for Chinese Asset-Backed Securitization

Abstract

Chinese asset-backed securitization (ABS) started from the release of the Pilot Administrative Measures for Pilot Securitization of Credit Assets in 2005 by the China Banking Regulatory Commission (CBRC). Since then, ABS has gradually become a regular financing channel for hundreds of Chinese corporations. However, despite the dramatic increase in both issuance volume and the number of market participants, the Chinese ABS market is still in its infancy in some respects, such as transaction structures and secondary market liquidity. All issuance to date has used a stand-alone trust format. We have found that there is an impetus for innovation by Chinese originators so that the market can attain the full range of benefits that ABS offers (e.g., reducing funding costs, lowering transaction expenses, expediting the funding process, improving capital efficiency, etc.). In this article, we discuss the details of the master trust structure, a potential innovation that can benefit originators by lowering transaction costs and improving the efficiency of capital utilization in China.

TOPICS: Asset-backed securities (ABS), emerging