Focus on credit asset quality
October 13, 2010 | BY
clpstaff &clp articles &First ever credit asset trading regulations released for Beijing
A change in venue does not alter a credit asset trade, so for a better return investors should instead stay focused on the quality of the asset itself.
On September 20, the Beijing Financial Assets Exchange (BFAE) issued the country's first regulations on the credit asset trading market. These are aimed at and available only to those who are directly selling or purchasing credit assets over the BFAE. The first batch of participants included are mostly state-owned financial institutions.
Credit asset trading transactions used to be scattered across different equity exchange markets in China or conducted through a public bidding process. Commentators say the establishment of a credit asset platform on the BFAE reflects the government's aim to centralise all like activities to one venue.
Shenzhen-based Baohua Shu of Zhong Yin Law Firm, suggests that instead of focusing on the changes of the trading venue, which does not make any difference to the nature of the transactions, investors should instead pay more attention to the asset itself.
“The risk depends on the quality of the credit assets themselves, not where it is traded,” said Shu. “Investors should be careful of three things: the legality of the credit asset, substantiveness of the asset, and the possibility of retrieving the credit.”
According to Shu, trading on the BFAE is not mandatory for now. However he expects that the creation of a specialised platform for credit asset transactions would attract larger institutional players that will likely generate transactions of greater scale, quality and value.
On the day the new regulations were released, 10 credit portfolios with a total value of Rmb9.9 billion (US$1.48 billion) were officially listed on the BFAE.
Over the past three months, the BFAE has recorded a high turnover rate of credit asset trades. Of the listed 29 portfolios, 17 of them were successfully closed, which amounted to Rmb10.64 billion (US$1.59 billion). One portfolio has hit Rmb8.58 billion (US$1.28 billion), the largest of China's credit asset market.
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