Asset securitization is the conversion of assets that are not or are not liquid into securities that can be traded in financial markets, requiring processes such as asset separation proceeds and risk and the corresponding structured arrangements to be followed by the sale of assets to investors by the underwriter. The securitization of assets is, in effect, an early future gain to the asset holder with the participation of investors and intermediate service providers。
What is securitization of assets
Asset securitization is the issuance of asset-supported securities based on structured design for credit enhancement supported by future cash flows from underlying assets. Asset securitization is the financialization of the conflict between short-term demand for asset liquidity and long-term “false” values, as well as the use of financial instruments to market and realize the intrinsic value of assets。
The concept of abs, known as asset backed security, was pioneered by lewis, wall street, united states, in 1977, but the act of securitization of assets had taken place as early as 1968, particularly in the area of personal mortgages by united states banks。
With the accumulation of securitization techniques and business practices, the base assets have expanded in scope and can be securitized as cash stabilization assets evolve. It has now become the third major mainstream financing instrument alongside claims and equity。
In our country, the securitization of assets is regulated by the superintendence of silver, the “society of securities” and the “association of dealers”, which can be divided into credit abs, enterprises abs and abn, depending on the regulatory sector. Credits can be broken down into commercial property mortgages, business loans, etc.; business abs can be divided into commission loans, commercial property mortgages, trust rights and various rights of return。
What are the prerequisites for securitization of assets
While asset securitization appears to be supported by assets, in practice predictable cash flows from assets are at the heart of supporting asset securitization。
Since asset securitization is a process of financing securities issued with predictable cash flows, the core of asset securitization is the analysis of cash flows of securitized assets and related data, provided that cash flows of assets can be predicted. The value of assets is determined by its future cash flow, i. E. The equation “value of assets = the present value of the combined future cash flow”。
Summary
Securitization of assets allows for early realization of assets that lack liquidity and addresses the liquidity risks of asset holders is an important financing tool。
