Structured finance issue

IFR Asia Awards 2014
3 min read
Daniel Stanton

China’s burgeoning securitisation market stepped up a gear in 2014 as six companies won approval to issue securities backed against auto loans, but Volkswagen’s local financing unit went the extra mile to introduce global standards to the domestic arena.

Volkswagen Finance’s Rmb796m (US$130m) Driver China One brought international credit ratings to a domestic Chinese securitisation for the first time, with rankings from both Moody’s and Fitch. The structure allowed VW to manage its local finances without compromising on its global standards, closely emulating the Driver standard that the company has used in multiple jurisdictions worldwide.

China is already VW’s largest market and some analysts expect the auto ABS market there to double within a year.

“With the transaction of Driver China One, we have expanded our proven ABS programme to a new currency area and, thus, opened up a new source of refinancing for our strongly growing Chinese business,” said Frank Fiedler, CFO of German parent Volkswagen Financial Services.

The international format helped to bring in foreign investors and, with it, improve pricing, with around half of the offering going to international investors through local subsidiaries or China’s quota systems. In bringing to China international best practices, such as a fund cash reserve and a target over-collateralisation scheme, other issuers now have a standard to follow to attract the biggest possible investor base – an important template at a time when China’s regulators are looking to reduce the economy’s reliance on bank lending.

Based on 13,696 auto loans with a weighted-average remaining tenor of 16.45 months, the ABS achieved tight pricing relative to its peers, even though it came to market during a period of high volatility in China. It priced in late July, just as Chinese Treasury yields were spiking, yet managed to lock in tighter pricing than the four foreign-backed auto-finance providers to have priced in the weeks earlier.

Driver China One priced at 4.8% for its Class A tranche and 8.08% for its Class B tranche, towards the tight end of guidance and at the midpoint, respectively. The Rmb699m A tranche, with ratings of AAsf from Fitch and Aa3(sf) from Moody’s, was 1.2x oversubscribed and the Rmb44m B tranche, with an A–sf from Fitch and a Baa2(sf) from Moody’s, was 1.5x oversubscribed. A Rmb 52.7m subordinated tranche was not rated.

The deal, with legal maturity of August 2020, was the first fixed-rate offering of its kind in China and achieved a weighted-average effective interest rate of 8.69%.

HSBC was financial adviser for the transaction and CICC was lead underwriter, with Citic Trust acting as trustee.

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