On June 28, (IB) (Industrial Bank), as the lead underwriter, has formally issued the first notes to a value of￥ 1 billion backed by trust assets of Jointown Pharmaceutical Group Co., Ltd., 2016. This is the first structural asset-backed notes (ABN) of circular buying in China as well as one of the latest lines in asset-backed securities launched by trust institutions.
It is understood that the notes, initiated by Jointown Pharmaceutical Group Co., Ltd. (Jointown), is founded on the underlying assets composed of accounts receivable of drug and medical devices against public hospitals above Class 2 (included). The prime and the secondary products account for 77.7% and 22.3% respectively. The former adopts both internal and external credit enhancement schemes, namely, gradation according to order in redemption of principal and interest and difference complement. Therefore, it deserves the rating of AAA. The structural design of internal and external credit enhancement and public offering has materially reduced the financing cost on the part of organizations.
With the clear depth of capabilities of Jointown among private pharmaceutical wholesale corporations comes the advantage of an AA+ corporate credit rating. Considering that the company’s accounts receivable occur at a high frequency, involve high value and bear a short account receivable age, IB has customized a circular buying structure and built up a dynamic basic assets pool for Jointown. The issuing carrier administration will purchase the accounts receivable from Jointown continually during the validity period of the product under the agreement.
In contrast to the previous ABN, the project adopted ABN with revolving purchase structure for the first time, achieving innovation in product design. The relevant personnel in the Investment Banking Division of IB indicated, “The revolving purchase structure can better revitalize stock assets, so as to convert Jointown’s accounts receivable into cash in time and significantly improve the capital utilization efficiency”.
It is introduced that the product is a pilot project of National Association of Financial Market Institutional Investors (NAFMII) in the revision of the Guidelines for Asset-backed Notes of Non-financial Enterprises (2016). It’s also one of the first two ABN for which trust company serves as an issuing carrier.
Insiders believed that the design of revolving purchase structure enables short-term assets to support long-term securities and solves the problem of mismatch between basic assets validity and securities validity, which serves as a reference with regard to similar basic assets securitization.