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The parent company of cellular giant China Unicom raised 3.2 billion yuan (US$395.5 million) through an issue of asset-backed securities, the first such offering by a mainland corporation, its underwriter said.
In its landmark deal, state-owned China United Telecommunications will list its asset-backed securities (ABS) on the Shanghai bourse Sept. 13.
China United Telecommunications, the parent firm of overseas-listed China Unicom, raised the funds by selling securities supported by the revenue streams from the CDMA mobile network that it leases to the listed firm. The notes are guaranteed by the Bank of China (BOC).
Securitization, whereby revenue streams such as mortgages, credit card receivables, distressed debt and toll road fees are packaged and sold to investors, is in its infancy in China, although the asset class is well-established in the United States, South Korea and other more developed markets.
In developed markets, asset-backed securities are popular investments for insurers and mutual funds looking for stable income streams. Issuers like the debt securities because they free up capital from their balance sheets.
"By issuing ABS, United Telecommunication raised funds at a much lower cost," said Alex Zhao, managing director at investment bank China International Capital Corp., which handled the deal.
Instead of taking a one-year term loan at a government-set interest rate of 5.02 percent from a commercial bank, United Telecommunications is paying only 2.8 percent and 2.55 percent for its one-year and six-month asset-backed securities, respectively, Zhao said.
About 20 qualified investors, including companies, pension funds and financial institutions bought the Unicom securities.
(Shenzhen Daily September 5, 2005)
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