December 26, 2016 / 10:47 AM / 9 months ago

China taps ABS to sweeten infrastructure deals for private investors

BEIJING, Dec 26 (Reuters) - China plans to securitize assets that are part of public-private partnership (PPP) investments as it looks to offer a more stable and attractive investment opportunity for private investors.

China’s central planning agency and securities regulator will lead an effort to package assets from PPP projects into structured financial products offering income for investors, according to an announcement from the two agencies released on Monday.

China has sought ways to increase private investment in government-led investment projects, leery of worsening the balance sheets of already indebted state-owned enterprises and local governments.

But low participation rates among private capital have long been an issue with the high-profile investment programme, with companies citing low rates of return and challenges in competing with state firms among reasons for staying on the sidelines.

The new ABS programme is seen as a way to attract more private capital and speed up the return capital to investors, the notice from the National Development Reform Commission (NDRC) and China Securities Regulatory Commission (CSRC) said.

“I think the key thing is that it is a way to exit (the PPP investments). Whether for the government or social capital, it’s a good start.” said Wang Xuebin, head of financial institutions group at J.P. Morgan First Capital Securities Co in Beijing.

Each provincial-level NDRC office needs to nominate one to three PPP projects to participate by February 17 next year, and only traditional infrastructure projects are eligible.

Preference would be given to projects that counted leading enterprises as partner investors, the notice said, while no timeline for the issue of the first PPP-backed ABS was given.

The ABS products would likely prove popular among institutional investors, Wang said.

“PPP projects are relatively safe, and although the rate of investment return will not be as high as for other products, it’s pretty stable, with reliable income from government subsidies and project operation.” (Reporting by Elias Glenn and Shu Zhang; Editing by Nick Macfie)

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