China’s first asset-backed security tied to stock margin loans is raising concern that authorities are fueling new risks as they attempt to reverse an equities slump.
Guotai Junan Securities Co., the nation’s second-biggest listed brokerage, plans to sell 500 million yuan ($80.5 million) of bonds Friday backed by margin facilities it extended to stock investors, according to a company statement. The offering comes after a stock rout last month that prompted regulators to allow brokerages to securitize margin loans.
China is increasingly opening to ABS, having reversed course in 2012 to allow sales regulators had banned in 2009 after the products helped spark the global financial crisis. Investor concern has mounted that unintended risks could spread after unprecedented state intervention to help staunch the stock slide that wiped out as much as $4 trillion.
Its offering consists of a primary tranche, rated AAA, of 475 million yuan, and a subordinated tranche of 25 million yuan, according to the statement.
“We’re going to see more brokerages issue similar ABS products” after the China Securities Regulatory Commission allowed margin financing to be used as collateral, Chen at DBS Vickers said.