Chinese Version

Gezhouba behind green ABS issue

Time:2017-09-18 From: Author:

With the gradual expansion of China's green bond market, traditional enterprises hope to achieve the transition through innovative green financing mode. Eager investors are also turning their attention to the new green asset securitization project.

 

According to the Securities Times, on November 22, 2016, Huatai Asset Management-Gezhouba Hydroelectricity Internet Charging Green Property Support Special Plan (hereinafter referred to as "Gezhouba ABS") was successfully issued, becoming the first green hydropower ABS issued nationwide.

 

Under the trend of the times, the combination of the two is a matter of course. As the first green hydropower ABS in the country, the issuance of this bond is quite meaningful.

 

"Green King" double green exploration

The total amount of issue of "Gezhouba ABS" project was 800 million yuan, of which the priority scale was 760 million yuan. The five-grade rating was AAA with a term of 1-5 years. Pay interest annually, due principal repayment, the priority issue rate of 3.2% -3.6%. The ABS project has been listed on the Shanghai Stock Exchange no objection, the Huatai Securities as the plan manager, China Gezhouba Group Co., Ltd. full promotion.

 

In fact, as early as 2006, many scholars wrote that hydropower projects have huge investment, long fund occupation time and long payback period. Using ABS can be a better choice.

 

ABS (Asset-Backed-Securities) is a securitization financing model supported by the assets to which the project belongs. It is a project financing approach based on the assets owned by the project and guaranteed by the expected benefits that the project can generate through the issuance of bonds in the capital markets.

 

In addition, ABS usually has the advantages of low financing costs, fewer involved links, less financing risks and diversified sources of funds, and can raise project construction funds with a longer term and larger scale at a lower capital cost. As a result, Large-scale, long-term, slow return on capital urban infrastructure projects, is an ideal way of financing, has been widely used in related fields abroad.

 

Correspondingly, the income of hydropower projects is safe, sustainable and stable, meets the basic requirements of asset-backed securitization, has good profitability and relatively stable operating cash flow in the future, which is comparable to that of all parties in the securities market Great attraction.

 

For the feasibility of financing ABS hydropower projects, experts and scholars have a very mature analysis. In 2016, the vigorous development of green industry and green bonds provides historical opportunities for the transformation of traditional enterprises and the accelerated development of green ABS.

 

In the context of the turmoil in the green bond market, China's Gezhouba Group, which originally gave the impression of "doing a good job", has also started to exert frequent force in areas such as investment, environmental protection and water conservancy, and achieved substantial gains. In the first half of 2016, the company received revenue of nearly 40 billion yuan and net profit of 1.44 billion yuan, earning the title of "Earn Money King" from E shares. In November, Gezhouba Group formally set foot in the field of green asset securitization and became another major force in "green finance."

 

According to the official website of China Gezhouba Group Investment Holdings Co., Ltd., the hydropower "green" ABS issued this time is in response to the "Guiding Opinions on Building a Green Financial System" promulgated by the state ministries and commissions. The underlying assets are the future of the five hydroelectric power generation companies affiliated to the Group During the specific period of hydropower fees online, all the funds raised for refinancing the above hydropower station. The investment in basic assets and proceeds raised is in line with the definition of "5. Clean Energy" as listed in the "Green Bonds Supported Project Catalog (2015 Edition)", specifically corresponding to "5.6 Hydroelectric Power" issued by Beijing Zhongcai Green Financial Consulting Co., Ltd. The green assessment certification report, can be described as the end of the asset and use of "double green" products.

 

Practice and miniature

The green practice of Gezhouba Group is only a microcosm of the development of China's green bonds.

 

2016 is the first year of China's green bond issuance. During this year, green bonds achieved a large-scale growth from scratch. According to Ma Jun, chief economist of the Research Bureau of the People's Bank of China, from the beginning of this year to December 12, the scale of green bonds issued by domestic and overseas institutions reached 220 billion yuan, accounting for 42% of the world's green bond issuance in the same period. Ranking first in the world

 

According to the information disclosed by the Shanghai Stock Exchange, as of early December, 14 green corporate bonds and 3 green asset-backed securities have been successfully completed, amounting to more than 22 billion yuan. Pilot so far, can only quantify the assessment of environmental benefits, including annual savings of nearly 48 million tons of standard coal for our country, more than 100 million tons of carbon dioxide emissions to reduce 11,500 tons of dust and so on. It seems that green bonds have begun to take shape in promoting the construction of ecological civilization, helping the economic structure to be adjusted and optimized and accelerating the transformation of development modes.

 

However, Ma Jun said that China's green bonds issued this year account for about 2% of the total bond issuance volume. "This proportion is still very low. There is still much room for development in China's green bond market."

 

For the green ABS sector alone, the growth prospects are impressive. According to the report of China Securities Journal, at present, the global securitization of green assets is still in the exploratory stage. Looking at the domestic, green ABS market has great potential, the innovation of basic asset pool also worth the wait. At present, the basic assets available for securitization are mostly concentrated in sewage treatment fees, garbage disposal fees, power generation fee income of biomass power generation, rights of repayment of photovoltaic power stations and so on.

 

Vigorously develop green ABS development has many benefits. First, the green industry generally has the characteristics of large investment and long recovery cycle. For the high-quality environmental protection projects, ABS structured financing can be based on the cash flow of the underlying assets rather than the overall credit standing of the enterprise. Through different ways of adding credit Provide fast, long-term and stable financial support for enterprises and match the development characteristics of green industries; secondly, enterprises that issue green ABS products generally belong to the sunrise industry and the probability of default risk will be greatly reduced; third, through ABS financing It will help to ensure the use of funds from the source to designated green projects and improve the efficiency and accuracy of resource allocation. It will activate stock assets as well as provide innovative investment products to match the diversified needs of both investors and financiers.

 

The great potential of green ABS also confirms the future prospects of China's green development. Xi Jinping, leader of the leading group for deepening the overall reform of the Central Government, pointed out at the 27th meeting of the Shenzhen Restructuring Commission that it is necessary to guide and encourage more social capital to invest in green industries through innovative financial system arrangements while effectively suppressing polluting investments.

 

With the vigorous development of green finance, it has become increasingly leveraged. On the one hand, through innovative investment and financing systems and mechanisms, blood transfusion can be provided to ecological protection industries and more financial funds can be diverted to green, environmental protection, low-carbon, Ecological and other fields, reduce the cost of capital of the relevant subjects, improve their return on investment, thereby leveraging more social capital to enter, that is, "plus leverage"; the other hand, it can also limit the flow of financial capital to non-environmental areas, increase the relevant subjects Of the cost of capital, reduce its return on investment, and gradually squeeze out the capital in this area, reducing supply capacity, so as to "reduce leverage" for many industries with excess capacity.

 

Green finance, including green ABS, undoubtedly provides an inspiring window for China's green development. It is not far off exploring new mechanisms for green development and cracking down on the sustainable development that constrain the traditional heavy-asset industries.

 

Source: Xinhua Net, China Securities Journal, China Securities Journal, China Gezhouba Group official website, Hubei Daily, Phoenix Financial, Tianfeng Securities Research Report