STRUCTURED FINANCE: Postal Savings closes China's first domestic RMBS in 7 years

2 min read
Asia

Postal Savings Bank of China yesterday sold the first domestic residential mortgage-backed securities in China in seven years. China Construction Bank sold the last Chinese RMBS deal in 2007.

PSBC’s Rmb6.8bn (US$1.12bn) RMBS offering was split into three: A Rmb5.996bn A tranche, priced to yield 280bp over the one-year deposit rate or 5.8% for the first interest rate period, a Rmb477m B tranche, priced to yield 379bp over the one-year deposit rate or 6.79% for the first interest-rate period and a Rmb341m unrated subordinated tranche that te originator retained to fulfil the 5% requirement of the China Banking Regulatory Commission .

The A tranche was indicated to yield 230bp–280bp over the one-year deposit rate, and the B was indicated at 330bp–380bp over the one-year deposit rate.

The transaction was about 1.25x covered, reflecting less demand than seen for recent collateralised loan obligations in China. The repayment schedule is less certain for RMBS, generally, because these have longer tenors. The PSBC offering was structured as a pass-through security, meaning cash flows from the underlying mortgage loans are passed on to investors.

Bidding on the senior tranches was delayed a few hours yesterday because of technical errors in the bidding system, a reflection of the market’s inexperience in handling complex securities transactions.

The offering is backed against 23,680 performing loans from individual borrowers. The weighted-average interest rate on the loans is 5.88%, for a weighted-average remaining tenor of 15.16 years.

The legal maturity of the deal is December 31 2039.

Assuming a conditional prepayment rate of 0%, the weighted average life for tranche A is 7.55 years and for tranche B is 16.7 years.

The average age of the borrowers is 37.3 years, with an average initial mortgage rate of 60.96%.

Chengxin and China Credit both rated the A tranches AAA, but the former rated the B tranche A– and the latter saw it as an A. The settlement day is tomorrow.

Citic Securities was lead manager on the deal. Bank of Communications International Trust is the trustee.