China Energy Issues Its First 5-Billion-Yuan ABS

China Energy joined hands with ICBC Credit Suisse Investment Management Co., Ltd. to issue the Phase-1 “energy supply asset guarantee project” at Shanghai Stock Exchange (SSE) on November 29. With an initial scale of 5 billion yuan and a coupon rate of 2.85%, the one-year asset-backed securitization (ABS) product is the largest of its kind with the lowest interest rate issued by a centrally administered state-owned enterprise, as well as China’s first energy supply-themed ABS product, which has won wide recognition on the market.

The issuance of the ABS product (Phase 1-20) was approved by SSE on November 12. It is issued in the form characterized by shelf registration and phased offerings, with a total shelf scale of 15 billion yuan. The phase 1 involved 5 billion yuan. It has benchmark power rate as the basic assets. Guoneng Factoring Co., Ltd. under China Energy Capital Holdings Co., Ltd. is the original rights-and-interests owner, and the funds raised will be used in production and operations of power plants under China Energy, thus promoting the corporation’s power supply work.

ABS is a way to generate cash flow through the underlying asset pool by issuing bonds on the capital market, which is then used to pay off investors’ principles and interests. Underlying assets generally refer to assets with expected cash flow incomes such as receivable accounts, lease incomes, and loans. Through packaging assets with relatively low liquidity and conducting structural cash flow reorganization, ABS can establish standardized financial tools to significantly improve the liquidity and profitability of assets, which is widely used by large conglomerates to manage creditors’ rights and stocks and activate assets, so as to improve cash flow and reduce debts.