With the growing size of automobile production and sales, china's automotive financial market has also grown at a rapid pace, reaching just over 150 billion yuan in 2010 and now reaching over 500 billion yuan in 2013, and about 1. 1 trillion yuan in 2016. Projections indicate that the size of china's automotive financial market will reach 185 billion yuan in 2018 and 20 billion yuan in 2020。
Financing difficulties for auto finance companies:
In order to develop, companies cannot afford to rob markets of financing. As a non-bank financial institution, the automotive finance corporation is unable to meet its own financial needs by absorbing public deposits, mainly from bank loans, co-lending, bond issues, shareholder capital, etc。
First, the regulatory authorities have clear provisions and limitations on the granting of debt by the automotive finance corporation. In addition, the superintendence grants the right to borrow from the automotive finance corporation, but given the generally shorter duration of its business lending and the generally longer duration of its car lending operations, this leads to a mismatch between the two. Finally, most of our automobile finance companies are subsidiaries of large foreign automobile finance companies operating in the country, whose foreign exchange is regulated and whose currency cannot be freely exchanged, which has prevented some foreign automobile finance companies from obtaining lower-cost funds in foreign markets for domestic development。
New sources of financing for automobile finance companies:
With the rapid growth of the automotive financial market and the growing scale of its operations, the aforementioned financing problems of the automotive finance corporation will become more prominent and new sources of financing are urgently needed。
From the point of view of its own ownership of assets, the automotive finance corporation, through its car buyer consumer credit service, owns a large number of vehicle-purchase loan claims assets, which can generate a stable cash flow in the future and which have a high degree of fragmentation and overall risk. Automobile loan asset support securities are an important part of the abs interbank market credit, with the automotive finance corporation using its auto mortgage as the underlying asset and selling the underlying asset to a special purpose trust, the trustee issuing the securities to investors and paying the principal and proceeds of the securities with cash generated from the trust property in the future。
The advantages of afc in supporting securities financing through the issuance of automobile loan assets are as follows:
1. Inventory assets
Most of the afc's assets are receivables arising from automobile loans, which are typically long-term and poorly liquid, and account for a large proportion of an enterprise's receivables that is not conducive to their development, and that are vulnerable to adverse effects such as financial liquidity failures and lower-quality corporate profits, so that they are used to issue asset-support securities, which can effectively inventory assets and mitigate these risks。
2. Reducing financing costs
From the point of view of issuing bonds, the high level of credit on the part of the subject represents the firm's ability to pay principal and interest on bonds and the low cost of issuing bonds. If a car finance company does not have its own corporate rating, the cost of issuing a bond is difficult to meet his financing requirements. However, the cost of issuance, while also affected by credit levels, is not directly influenced by the issuer's own credit levels, but is largely determined by the quality of the underlying assets of the pool. If the pool assets are of better overall quality, the pool may even have a credit level that exceeds that of the car finance company itself, which would greatly help the car finance company to reduce the cost of financing。
Increased levels of financing
The level of financing for securities finance, which is supported by automobile loan assets, depends largely on the size of the pool base asset, and theoretically, if automobile finance companies are able to provide sufficient base assets, they can raise sufficient funds。
Case of products:
The first issue of the personal car mortgage asset support security, set up in january 2017, was launched by refod automotive finance ltd., with the underlying asset being a personal car mortgage loan with subsidiary security interest issued by refford automotive finance ltd., which meets the eligibility criteria and is a normal type of loan. The product is as follows:
From: hin yong, first issue of personal automotive mortgage assets supporting securities, 2017
The structure of the transaction is as follows:
The first phase of personal car mortgage asset support measures in 2017, with no external credit enhancement measures, are:
Priority/substructure
Adopt a priority/substructure structure, broken down into priority a, priority b and sub-security. The funds recovered from the asset pool, as well as the proceeds of reinvestment, are paid in the order of the cash flow payment mechanism agreed in the trust contract, and the inferior hierarchical securities provide credit loss protection for higher-priority graded securities. In particular, credit support for priority a securities was 14. 75 per cent for secondary and priority b securities and 7. 75 per cent for priority b securities in the current period。
2. Trigger mechanism
There are two types of trigger mechanisms: “accelerated liquidation” and “default”. Once triggered, the event would result in a rearrangement of the cash flow distribution mechanism. The trigger arrangement has to some extent mitigated the impact of the event risk and provided some credit support。
The issuance of a car mortgage asset to support securities has broadened the access of enterprises to finance and, while reducing the cost of financing, optimized their own financial structure, which can be described as significant. The automobile financial market is huge, and in addition to the abs credit issued by the automobile finance corporation in the interbank market, many finance leasing companies have chosen to issue car rental abs products on the domestic exchange market, and we will talk about it next time due to space constraints。
