Securitisation 2025

CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm

CIBM Business Asset Securitisation The laws and regulations that have a mate - rial effect on the transaction structure of CIBM business asset securitisations include the Civil Code, the Trust Law, the Measures for Adminis - tration of Debt Financing Instruments Issued by Non-Financial Enterprises in the Interbank Bond Market (Order of PBOC [2008] No 1), and the Rules on CIBM Business Asset Securitisation and Information Disclosure Guidelines on CIBM Business Asset Securitisation (Announcement of the National Association of Financial Market Institutional Investors (NAFMII) [2023] No 3). 1.4 Special Purpose Entity (SPE) Jurisdiction In most (if not all) circumstances, the SPV will be set up in China and governed by PRC laws. For foreign exchange policy reasons, the transfer of underlying assets to a foreign SPV is almost impossible, as there is no explicit rule regarding such cross-border transfer of financial assets Credit enhancement in the securitisation mar - ket can be divided into internal credit enhance - ment and external credit enhancement. Forms of internal credit enhancement commonly used include subordination, over-collateralisation, cash deposits and cash reserve accounts. Forms of external credit enhancement include shortfall supplement commitments, guarantees, external liquidity support and credit risk mitigation instru - ments. In particular, shortfall supplement com - mitments are only used in business asset secu - ritisations, where the cash flow projection of the underlying assets is not persuasive enough or is highly dependent on the continuous operation of the originator; therefore, the commitments are except for non-performing loans. 1.5 Material Forms of Credit Enhancement

usually made by the originators, the ultimate financing parties or their related parties.

2. Roles and Responsibilities of the Parties 2.1 Issuers Role of the Issuer In credit asset securitisation, the issuer is the trustee of the SPT, which must have an SPT trustee qualification approved by the National Administration of Financial Regulation (NAFR). In exchange market securitisations, the issuer is the manager of the ABSP, which can be a securi - ties company or its subsidiary, a subsidiary of a fund management company, a trust company, or an insurance asset management company. For CIBM business asset securitisations, the issuer shall be the special purpose vehicle (SPV) or its manager. Currently, the issuers are all trust companies with the SPT trustee qualification, but the National Association of Financial Market Institutional Investors (NAFMII) is considering expanding the scope of SPV manager to other asset management companies, to keep in line with the practice of exchange market securiti - sation. Issuer’s Responsibilities As the issuer is also the trustee or plan manager of the SPV, who stands in a trust relationship or agency relationship with the investors, its role is a combination of issuer and bond trustee. Its basic responsibilities include: • handling the approval, registration and record-filing regarding the securities issuance; • handling information disclosure during the issuance phase and life of the securities;

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