s&p global ratings & bccl virtual seminar 2021

S&P Global Ratings & BCCL Virtual Seminar 2021: Demystifying China CreditsWednesday, September 15, 2021

Housekeeping Notes

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3

Seminar Agenda

4:00 - 4:10 pm: Access To China Bond Market

Phoebe Leung, Senior Vice President, Head of Sales & Marketing, Bond Connect Company Limited

4:10 - 4:40 pm: Deep Dive Into China's Credit Market And Structured Finance

May Zhong, Head of Analytics, S&P Global (China) Ratings

Jerry Fang, Senior Director & Analytical Manager, North Asia (ex. Japan), Structured Finance Ratings, S&P Global Ratings

4:40 - 4:50 pm: A Future Track To Primary

Benton Wong, Vice President, Sales & Marketing, Bond Connect Company Limited

4:50 - 5:35 pm: Panel Discussion - Development Of Green Bond Market In China & Prospects Of Sustainable Investing

Brad Gibson, Co-Head of Asia Pacific Fixed Income, AllianceBernstein

Jing Wen, Deputy Chief Manager, Investment Banking Department, China Construction Bank Corporation

Shan He, Deputy Director, Treasury and Financial Management Center, China Three Gorges Corporation

Daming Cheng, Member of CICC’s IBD Business Development Committee, Managing Director, China International Capital

Corporation Limited

Moderator:

Erik Christianto, Director, ESG Product Specialist, S&P Global Ratings

5:35 - 5:45 pm: Q&A

Access To China Bond Market

Phoebe Leung

Senior Vice President, Head of Sales & Marketing, Bond Connect

Company Limited

5

A Joint Venture Of

FAST TRACK TO CHINA BOND MARKET

2018 Most Impressive InnovationBond Connect

2017 Best Financial Innovative Project by

Shanghai Government

Access to China Bond MarketPhoebe Leung

Senior Vice President, Head of Sales & MarketingBond Connect Company Limited

September 2021

6

47.2

18.6

14.7

7.25.5

4.33.9 3.7

2.4 2.3 2.50.9 1.0 0.9

226%

126%

291%

265%

213%

113%

222%

207%

264%

181%

159%

243%257%

0%

100%

200%

300%

400%

0.0

10.0

20.0

30.0

40.0

50.0

UnitedStates

China Japan UnitedKingdom

France Germany Canada Italy Netherlands Spain Australia Luxembourg Ireland Denmark

Debt Securities Outstanding End of 2020 (USD tn)

▪ 2nd Largest Economy▪ 2nd Largest Bond Market with 19.6% CAGR

China—Too Big to be Ignored

USD (tn)

0

5

10

15

20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: WIND, IMF, BIS, The World Bank

Debt Securities Outstanding/GDP (%)

China Bond Market— An Awakening Dragon

7Source: WIND, CBRC, IMF, SIFMA, BIS

Evolution of China Fixed Income Market & Foreign Participation

Fast Growing International Participation

A Road from 2% to 15% Target

HOW It Is Achieved

• Disintermediation— From heavy reliance on traditional banking channels to Debt & Equity markets

• Enhancement of trading & volatility of China Fixed Income Market

• Bridging China Fixed Income Trading (RMB derivatives) to international market standard

• Technological development

• Municipal bond market development & local debt repricing

• Credit repricing & differentiation

• Buy-side development

WHY Introduce International Participation

PBOC TARGET: 15%

Enhancements via—• China Access Schemes Enhancements• Bond Connect-Ease of entry in DM Model Nominee

Account Structure• Index inclusion• Hedging Tools Enhancements-OTC Derivatives Repo

Bond Index• Credit & LGFV Access

FOREIGN HOLDINGS

<2%

FOREIGN HOLDINGS

3.4%

2.32

2.562.69

2.862.86

3.41

2.43

2.78

3.04

3.213.27

3.60

2.753.01

3.33

3.563.62

2.72

3.07

3.43

3.70 3.78

0.00

1.00

2.00

3.00

4.00

1 yr 3 yr 5 yr 7 yr 10yr 30yr

Yie

ld

(%)

CGB CDB EXIM & ADB AAA+ AAA

CIBM Yield Curves

China Interbank Yield Curves— Value Proposition

2.252.32

2.552.62 2.66

2

2.4

2.8

3.2

1m 3m 6m 9m 1yr

Yie

ld (

%)

NCD Yield Curve (AAA)

2.392.54

2.682.87 2.86 2.97

3.41

-1.50

-0.50

0.50

1.50

2.50

3.50

4.50

2 Year 3 Year 5 Year 7 Year 10 Year 15 Year 30 Year

Yie

ld

(%)

United States United Kingdom France

Germany Japan Australia

South Korea China

Global Govi Valuation Comparison

Source: WIND, Bloomberg as of September 8th, 20218

China

Interbank Bond Market (CIBM) Exchange Bond Market

Trading System CFETS Shanghai / Shenzhen Stock Exchange

Bond Types Traded

• Government bonds• Policy bank bonds• PBoC bills• NCDs• SCPs, CPs & MTNs• Dual-listed enterprise bonds• ABS

• Government bonds• Dual-listed enterprise bonds• Corporate bonds• Convertible bonds• SME PPN

Settlement Cycle Up to T+N electronification via Tradeweb & Bloomberg T+1

Trading HoursMonday to Friday 09:00-12:00; 13:30-20:00 (T+0 notapplicable during 16:30-20:00) Monday to Friday 09:30-11:30, 13:00-15:00

Permitted Investor Participants All types of institutional investors Insurance, securities, funds, listed banks, individuals

Regulators PBoC, NDRC, MoF CSRC

Bond Connect Provides Access to Interbank Bond Market

30,000+ Tradable BondsLiquidity, Size, Broad Product Spectrum

The Interbank and Exchange Bond Markets

Source: CSDC, WIND

15.1 (13%)

107.2 (87%)

0 20 40 60 80 100 120

Exchange Market

Interbank Bond Market

Amount Outstandig (RMB tn)

9

10

Key Bond Types in China Bond Market

Source: WIND

Bond Type Market Share Key TenorDaily Trading Volume

(RMB bn)Bid/Ask Spread Market Liquidity

Interbank Exchange

Rates Bonds

Chinese Government Bonds 17.51% 1, 3, 5, 7, 10yr 164.5 1.8 1-2 bps ****Local Government Bonds 22.81% 3, 5, 7, 10yr 47.2 - 5-10 bps *Policy Bank Bonds 15.95% 1, 3, 5, 7, 10yr 308.4 0.4 0.5-2 bps *****Credit Bonds

Certificate of Deposits (NCDs) 10.20% 3m, 6m, 9m, 1yr 166.8 - 5 bps *****

Commercial Paper (CPs / SCPs) 1.85% 6m, 9m, 1yr 37.4 - 4-8 bps ***

Medium-Term Notes (MTNs) 6.34% 3yr - 10yr 43.4 - 5-10 bps ***

Government Supported Bonds 1.46% 5yr - 20yr 1.7 - 3-5 bps **

Corporate & Enterprise Bonds 9.57% 3yr - 15yr 4.9 2.7 5-10 bps **

Financial Bonds 7.89% 2yr - 15yr 38.2 0.7 - *Private Placement (PPN) 1.86% <3yr 10.5 - -

Asset-Backed Securities (ABS) 3.91% 1yr - 30yr 3.4 0.5 -

Convertible & Exchangeable Bonds

0.65% 2yr - 6yr - 55.4 2 points *

Panda Bonds - 1,3,5,7,10yr - - 5-10 bps *

In 4 years, 2876 Bond Connect Investors are onboarded across 730 Entities vs492 Entities for CIBM Agent Model. 78 out of Top 100 Global AM Companies havebeen attracted by the scheme.

• Solid demand of RMB assets among international investors in current globalrates environment during COVID-19

• Total investor count steadily increasing with ongoing RMB internationalizationmeasures, accentuated by progressive benchmark index inclusion of CGBbonds

• Specific rising interest from pension funds, securities, private banks & familyoffices

Rising Impact of Bond Connect as Major Investment Channel

200

600

1000

1400

1800

2200

2600

3000

Q1-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21

CIBM Agent Model Bond Connect

International Investors Accounts Opened(Bond Connect vs CIBM Agent Model) 2876

(+30% YOY)

Source: BCCL as of September 8th, 202111

BC Market Makers

Trading

Settlement

International Investors

Trading Link

Settlement Link

Existing interface

Existing interface

Nominee StructureCMU Members

HKMA

CMU

CCDC & Shanghai Clearing House

CFETS Trading System

Recognized Access

Platforms

Global Custodians

Bond Connect Northbound Operating Model

Bond Connect Onboarding Trend

A Changing & Expanding Investor Base— Jurisdictions

Hong Kong Taiwan SingaporeUnited States of America CaymanBritish Virgin Islands

Macau

United Kingdom AustraliaKorea Dubai Japan

Switzerland Germany

France Malaysia Ireland Bermuda

Luxembourg Canada Philippines

Denmark Belgium Austria

Thailand Netherlands Sweden NewZealand

Abu Dhabi Bahamas

Registration Jurisdictions Breakdown

By Onboarded Financial Institutions

By Financial Institutions/Asset Managers of Funds, Products & Asset Owners

US; 34%

HK; 16%UK;15%

SG; 6%

JP; 5%

LU; 4%

CA; 4%

TW; 2%

GE; 2%

CH; 2%AU; 2% Others; 8%

HK, 33%

US, 15%

UK, 9%SG, 7%

TW, 6%

JP, 6%

AU, 3%

LU, 3%

CA, 2%KR, 2%

CH, 2%

Others, 13%

Italy

Finland RussiaSouth AfricaBrazilNorwayKazakhstan

Russia,

June 2020

Finland, April 2020

Italy, August 2019

Bahamas, July 2019

Abu Dhabi,

June 2019

Japan, June 2017

South Africa November 2020

Brazil

July 2021

Norway,

July 2021

Kazakhstan,

August 2021

Spanning Across 37 Global Jurisdictions

Emerging interests are seen across Central Asia, Middle East, Africa and Latin America & the Caribbean.

Recent Trend


0

5

10

15

20

25

30

35

40

45

50

0

500

1000

1500

2000

2500

3000

Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21

ADT (RMB billion) Approved Investors Traded Accounts

Trading Volume1. RMB 49.61bn (~USD 6.38bn)2. RMB 43.65bn (~USD 5.61bn)3. RMB 42.97bn (~USD 5.53bn)

Out of 2700+ accounts opened

+1500 have now traded (507 Entities)

(21 Apr)(26 May)(21 Jun)

Making History with Record Highs in June 2021

An Explosive Growth in Trading Activities

Momentum is on the rise

This is only the Beginning.

RMB 641.12bn (~USD 82.44bn)RMB 30.53bn (~USD 3.93bn)6407

Total VolumeADT

Total Tickets

League Table

Yearly ADT

Number of Investor

Accounts Opened

Est. 2022

NOWRMB 24.25bn

(~USD 3.75bn)

ADT (RMB bn)

(30 Jul)(30 Nov)(30 Oct)

Trade Tickets1. 7502. 7053. 656


Accelerating Trading Activities via Bond Connect

2018 RMB 3.6bn (~USD 462.9mn)2019 RMB 10.7bn (~USD 1.38bn)2020 RMB 19.8bn (~USD 2.55bn)

13

14

More Coming!Recent Developments

• ePrime – Investor Functionality

• FX Execution Flexibility; enhancements to FX

monitoring and reporting

• Offshore access to Exchange traded products

(ETP) and derivatives such as IRS, repo, etc.

• Expand E-trading platforms

• Develop China Credit Market– index,

securitization, tax netting for securitized

products

• Southbound facilitation

• More to come………

Additional Market Makers (56)

Fee Reduction:0.2bp for 0-1Y, 0.4bp for

beyond

Entity-level Onboarding Dealer Pay Model

Primary Market Information Platform &

NCD Subscription

API Datafeed Service to distribute real-time

transaction data

Trading Hour Extension to 8pm

ePrime underwriter functionality established

Transfer in Defaulted Bond on maturity

Extended Settlement Cycles &

Settlement Amendment

Additional FX Settlement Banks (28)

3rd Party FX

Source: BCCL

Bond Connect Developments — Constantly Evolving Scheme

15

• A Dedicated Website for Bond Connecthttps://www.chinabondconnect.com

• Rules and regulations

• Filing procedures for overseas investors

• Reference materials for trading & settlement of Bond Connect

• List of participating entities of Bond Connect

• Latest updates of Bond Connect scheme

• Contact Us

BCCL Sales & MarketingUnit 4701, 47/F., Two Exchange Square, 8 Connaught Place, Central, Hong KongTel: (+852) 2327 0033Email: [email protected]

• Follow Us

Admission Handbook

For more Information

https://www.chinabondconnect.com/

mailto:[email protected]

Deep Dive Into China's Credit Market And Structured Finance

May Zhong

Head of Analytics, S&P Global (China) Ratings

Jerry Fang

Senior Director & Analytical Manager, North Asia (ex. Japan),

Structured Finance Ratings, S&P Global Ratings

Footer : Never change the footer text on individual slides. Change, turn on or off footer by using Data color order: Complimentary colors:

Overview of China’s LGFV and Property Companies

Sep, 2021

May Zhong

Head of Analytics, Managing Director

S&P Global (China) Ratings

• Beijing

• +86-10-6516-6051

• [email protected]


Content

I. Indicative Credit Quality Distribution

II. Overview of China’s LGFVs

III. Overview of China’s Property Companies

18


19

Indicative Credit Quality Distribution I


Overview Of China Corporate Bond Market

20

▪ China corporate bond market has grown rapidly, with the issuance amount increasing year on year.

▪ LGFV and property developers account for more than 50% of the market in 2020 by issuer number.

Note: Interest rate bonds mainly refer to government bonds, local government

bonds, policy bank bonds and central bank bills.


Indicative Credit Quality Distribution Of Our Sampled Corporate Entities

21

▪ According to our recent research, the chart shows the indicative issuer credit quality distribution of about 1,700 entities.

▪ Our desktop analysis is based on public information, using our corporate ratings methodology.

▪ The sampled companies are spread across nearly 20 subsectors in many large industries, and their median indicative issuer credit quality is in [BBBspc]* category.


Understanding S&P Global (China) Ratings’ Credit Differentiation And Our Rating Scale

22

▪ We observe that the differentiation from the secondary market spread curve indicates domestic investors have already distinguished credit quality among issuers.

▪ S&P Global (China) believes ratings should be comparable across industries, and that high ratings, such as ‘AAAspc’, should demonstrate excellent credit performance over time compared with lower rated entities and lower ratings, such as ‘Bspc’ should demonstrate weaker and more volatile credit performance over time compared with higher rated entities.


Understanding S&P Global (China) Ratings’ Credit Differentiation And Our Rating Scale

23

▪ From the chart we can observe a broad relationship between the two rating scales, with the indicative credit quality distribution by S&P Global China Ratings of the 143 corporates covering the entire spectrum from [AAAspc] to [Bspc-] and below.

▪ In general, ratings on companies with stronger credit quality may vary more widely on the two scales, while any difference in ratings on entities with weaker credit quality is generally smaller. It should be emphasized that this is based on our observation and is not absolute, and there is no one-to-one mapping between the results of S&P Global (China) Ratings and S&P Global Ratings


24

Overview of China’s LGFVsII


Indicative Credit Quality Distribution Of LGFVs

25

▪ According to our recent research, the chart shows the indicative issuer credit quality distribution of top 500 LGFVs by asset.

▪ Their median indicative issuer credit quality is in [BBBspc]* category.


Indicative Credit Quality Distribution Of LGFVs

26

▪ According to our recent research, the chart shows the indicative issuer credit quality distribution of about 1,800 LGFVs.

▪ Their median indicative issuer credit quality is in [BBspc]* category.


Overall Issue Amount Of LGFVs Is Increasing

27

▪ The issuance of LGFVs is increasing in recent years, with the among reaching 4.7

Trillion in 2020.

▪ The amount of bonds issued by different provinces varies greatly.


Some Provinces Show Negative Net Financing

28

▪ Although overall net financing of LGFVs is

positive, different provinces have different

net financing amount.

▪ Net financing amount of some provinces is

positive and large, such as Zhejiang

province. However, Tianjin, Yunnan and

Shaanxi Provinces record negative net

financing.


Divergence Of LGFV Credit Spread

29

▪ The credit spread of Guizhou is the highest,

which indicates the risk of LGFVs in this

province is high.

▪ The credit spreads of some provinces show

upward trend obviously, because of slow

economic development and heavy debt burden.

▪ The credit spreads of other provinces show

slow downward trend, since these provinces

have strong economy and good fiscal

performance.


The Purpose Of Bonds Issue Is Mainly Used To Repay Debt

30

▪ Compared with 2020, the proceeds of

bond issuance are mainly used for

refinancing in 2021, since regulator

forbid the creation of new hidden local

government debt.

▪ We expected that the proportion of

Projects purpose bonds would

decrease, offset by increasing special

bonds issued by governments.


Private Bond Issuance Is Likely To Be Restricted

31

▪ Although non-public offering bonds account

for the largest part of total LGFVs bonds, we

anticipate the proportion of Private

Placements and Private Placement Notes will

decrease in future, since government and

regulator advocate public offering bonds.


LGFV Summery

On the back of government’s oversight on hidden debt, we have observed the following trends in the LGFV sector:

• Despite increasing issuance amount, it varies among different regions. Some regions experience declining net refinancing and higher spreads.

• The purpose of recent issuance is mainly for refinancing purpose.

• Private placement is likely to decrease.

In summary, credit differentiation is likely to deepen among LGFVs in different regions. Tail end issuers like those from economically weaker regions with higher leverage could face tailwind

32


33

Overview Of China’s Property CompaniesIII


34

China’s Property Market Shows Recovery After The Pandemic

▪ The pandemic has a temporary impact on China’s property market. At the beginning of 2020, property sales dropped significantly，but the sector has gradually bounced back from COVID.

▪ Due to low base in 2020, sales maintained a rapid growth over the past half a year. We expect the growth rate to slow down in the second half of the year given current tightening conditions.

▪ We expect China property sales to increase by 5% in 2021.


Distribution Of Property Developers’ Indicative Credit Quality

35

▪ According to our recent research, the chart shows the indicative credit quality distribution of about 174 property developers.

▪ The sampled developers’ median indicative issuer credit quality is in [BBspc+].

▪ The indicative stand-alone credit quality of developers are relatively low due to the moderately high industry risk and their high financial risk profile.

▪ Some developers with state-owned background may have better indicative issuer credit quality, as they enjoy government or SOE group support and have advantages such as better financial flexibility and access.


Distribution of Property Developers’ Indicative Business Risk Profile (BRP) & Financial Risk Profile (FRP )

36


Developers With High Leverage And Tight Liquidity Are More Likely To Face Default Risk

37

▪ In our view, tightened regulation may be of particular concern for highly-leveraged developers facing significant debt maturities. Such developers may struggle to access the funds needed to meet their obligations, heightening the risk of a potential liquidity crisis.

▪ Under the current tight financing environment in China, financial institutions are being particularly cautious amid a spate of recent developer defaults. Such caution has a knock-on effect for developers with weaker credit profiles, increasing their refinancing risk.


Risks and Opportunities Coexist in China Real Estate Market

▪ In our view, the regulatory oversight of the property sector will maintain. They may fine-tune the policy with the economic development, but the overall condition is expected to remain tight.

▪ The growth rate of the industry will decline, and the sales will remain stable.

▪ In our view, property margins have peaked in China due to rising land prices and caps on selling price, and cost management is becoming increasingly important to developers.

▪ In the medium-to-long term, the overall industry deleveraging is conducive to the improvement of the industry's median credit level.

▪ In the short-to-medium term, the industry may show credit divergence, and credit event may increase amid tight funding conditions.

▪ The overall scale of China real estate market is still huge, the demand of the core urban agglomeration is strong, and the industry’s concentration will continue to increase.

▪ Developers with benign financial leverage, strong cost control and proper strategy execution will benefit from a more stable external environment and increased industry concentration.

38

This report does not constitute a rating action

Deep Dive Into China's Credit Market And Structured Finance

Jerry Fang

Senior Director

S&P Global Ratings, Structured Finance

Sept. 15, 2021

Outline

40

Issuance trend and breakdown

Yield trend (take auto loan ABS as an example)

China Auto Loan ABS | Key characteristics and asset

performance

China RMBS | Key characteristics and asset performance

Overall Issuance Set New Record Every Year

41

– China is the second largest market globally in

terms of securitization issue with CAGR

c.30% in the past few years.

– We expect new issuance to total about

RMB3.6 trillion (US$550 billion) in 2021.

– Auto Loan ABS and RMBS are popular

sectors among offshore investors.

– Securitization transactions are likely to have

more green elements as time goes by, but the

ramp up will be gradual.28.2 28.0

331.0

613.5

881.3

1425.1

2005.7

2340.3

2897.9

1.3 11.4102.6 169.6

301.1485.7

707.7

951.2 963.5

1368.9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021B

il. R

MB

Securitization Issuance Momentum Continued

Annual Issuance

1H Issuance

C

Note: Including issuance under the credit asset securitization (CAS) scheme managed by the China Banking and Insurance Regulatory Commission (CBIRC) andthe People's Bank of China (PBOC), the securitization scheme managed by the China Securities Regulatory Commission (CSRC), and the asset-backed notes(ABN) scheme managed by China’s National Association of Financial Market Institutional Investors (NAFMII).Source: Chinabond, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

We expect flat-to-single digit issuance growth in 2021 Each active originator sponsored 2-4 issuances each year

Steady Auto Loan ABS Issuance Supported By 10+ Frequent Issuers

42

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

BYD Auto Finance Co. Ltd.

Toyota Motor Finance (China) Co. Ltd.

Tianjin Great Wall Binyin Automotive…

Beijing Hyundai Auto Finance Co. Ltd.

GAC-SOFINCO Automobile Finance Co. Ltd.

SAIC Finance Co. Ltd.

Ford Automotive Finance (China) Ltd.

Fortune Auto Finance Co. Ltd.

Volkswagen Finance (China) Co. Ltd.

Mercedes-Benz Financial

Genius Auto Finance Co. Ltd.

Chery Huiyin Motor Finance Service Co. Ltd.

BMW Automotive Finance (China) Co. Ltd.

SAIC-GMAC Automotive Finance Co. Ltd.

Dongfeng Nissan Finance Co. Ltd.

Number Of Transactions

Number of Auto Loan ABS Transactions By Selective Originator

2016

2017

2018

2019

2020

20211H

Source: Chinabond, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

196.6 194.0

121.5

0

50

100

150

200

250

Auto Loan ABS

Bil.

RM

B

Auto Loan ABS Issuance Over Years

2015

2016

2017

2018

2019

2020

20211H

C

*Consumer loan asset-backed securities issued under the credit asset securitization scheme managed by the China Bankingand Insurance Regulatory Commission and the People's Bank of China. ABS--Asset-backed securities. RMBS--Residentialmortgage-backed securities. CLO--Collateralized debt obligations.Source: Chinabond, Shanghai Clearing House, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

RMBS issuance could fluctuate in 2021 CCB and ICBC sponsored multiple issuances every year

RMBS Issuance Is Mainly Sponsored By Top Mortgage Originators

43

584.3

499.2

424.4

264.3

0

100

200

300

400

500

600

700

RMBS

Bil.

RM

B

RMBS Issuance Over Years

2015

2016

2017

2018

2019

2020

20211H

C

*Consumer loan asset-backed securities issued under the credit asset securitization scheme managed by the China Bankingand Insurance Regulatory Commission and the People's Bank of China. ABS--Asset-backed securities. RMBS--Residentialmortgage-backed securities. CLO--Collateralized debt obligations.Source: Chinabond, Shanghai Clearing House, WIND; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74

China CITIC Bank

China Merchants Bank

Bank of China

ICBC

China Construction Bank

Number Of Transactions

China RMBS: Number Of Transaction By Top Bank Originators 201620172018201920202021 1H

Note: Originators with more than one RMBS issuance. Source: Chinabond, WIND; compiled by S&PGlobal Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

Yield Trend | Take Auto Loan ABS As An Example

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

%

Coupons On The Most Senior Tranche Of China Auto Loan ABS

SHIBOR 6months

Coupons OnThe Most SeniorTranche ofChina Auto LoanABS

C

Source: National Interbank Funding Center, Chinabond; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

44

– The right chart shows coupons

hovered between 2.5% and

sub-4% in recent years.

– Coupons have to do with tenor

and liquidity in the market.

In terms of the securitized pools In terms of transaction structure, some of the key features

China Auto Loan ABS | Selective Key Characteristics

• Tens of thoughts of loans; Pools are granular

and well-diversified

• Low loan-to-value

• Short remaining loan tenor

• Mostly fully amortizing loans; some with small

portion of balloon loans

• No borrowers with adverse credit history as of

cut off day

• Most zero or low interest loans; negative carry

risk has been factored in in cash flow testing.

45

• Mostly senior/rated and unrated equity

tranches; some may have mezz tranches.

• Mostly sequential pay structure, with soft

amortization schedule for, e.g., A-1 class.

• Majority are still deals backed by static pools.

Deals with revolving period have increased.

• Notes pays interest at fixed rate.

• Senior most tranches backed by static pools

generally saw WA life between 0.5 and 0.8

years; could be up to a year or longer if

revolving period is adopted.

China Auto Loan ABS | Asset Performance Has Been Largely Stable

46

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

Weighted Average Asset Delinquency Rate Of All Auto Loan ABS Remained Largely Constant

W.A. 31-60days past due(M2)

W.A. 61-90days past due(M3)

W.A. 90+ dayspast due(M4+)

Note: Data as of June 30, 2021. The delinquency rates of the first three months after transactionclose is excluded. ABS --Asset-backed securities. W.A.--Weighted average. Source: Trustee reportspublished on Chinabond's website; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

0.00

0.20

0.40

0.60

0.80

1.00

%

Months after transaction close

Auto Loan ABS Cumulative Default Rate Remained Low

2012

2014

2015

2016

2017

2018

2019

2020

2021

C

Note: Data as of June 30, 2021. The definition of default may be different from deal to deal.Source: Trustee reports published on Chinabond's website; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

Cumulative default rate by annual vintage

In terms of the securitized poolsIn terms of transaction structure we rate, some of the key

features

China RMBS | Selective Key Characteristics

• Tens of thoughts of loans; Pools are granular

and well-diversified

• Low loan-to-value

• Short remaining loan tenor relative to other

markets

• Fully amortizing loans

• No borrowers with adverse credit history as of

cut off day

47

• Pari passu A-1, A-2, A-3, A-4, etc. backed

unrated by equity tranches; some may have

mezz tranches.

• Mostly sequential pay structure with soft

amortization schedule for, e.g., A-1 and A-2

• All are backed by static pools.

• Majority of notes pay LPR (or PBOC lending

rate) based floating rates, with minority pays

interest at fixed rate.

• Transactions’ WA life ranges from 5-7 years.

China RMBS | Asset Performance Has Been Largely Stable

48

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Sep

-20

Oct

-20

No

v-2

0

Dec

-20

Jan

-21

Feb

-21

Mar

-21

Ap

r-2

1

May

-21

Jun

-21

Delinquency Trend For The RMBS We Rate

W.A. 31-60days pastdue (M2)(right scale)

W.A. 61-90days pastdue (M3)(right scale)

W.A. 90+days pastdue (M4+)(right scale)

W.A. 1-30days pastdue (M1)(left scale)

Note: Transactions closed in the past 2 months or so are not included. RMBS --Residential mortgage-backed securities. W.A. --Weighted average. Source: Trustee reports published on Chinabond's website;compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

0.00

0.20

0.40

0.60

0.80

1.00

%

Months after transaction close

Bank-Sponsored RMBS' Cumulative Default Rate Rose Slightly

2014

2015

2016

2017

2018

2019

2020

2021

C

Note: Data as of June 30, 2021. The definition of default may be different from deal to deal. Number of transactions in 2014 and2015 vintages were less than 10 transactions.Source: Trustee reports published on Chinabond's website; compiled by S&P Global Ratings.Copyright © 2021 by Standard & Poor’s Financial Services LLC. All rights reserved.

Cumulative default rate by annual vintage

Various Types Of Research Articles Are Available To Help Investors

49

China Structured Finance Annual Outlook China Auto ABS And RMBS Monthly TrackerChina Securitization Quarterly Performance

Watch

A Primer on China’s RMBS Market Cross market comparison Timely Commentaries On Major Events

A Future Track To Primary

Benton Wong

Vice President, Sales & Marketing, Bond Connect Company Limited

51

To further complement the Northbound access, BCCL is delighted to provide a digital platform to access the onshore primary market in the near future, introducing a more efficient, transparent, informative subscription mechanism to the internationalinvestors

• Why is it important to international investors?

• Opens up opportunities

• Potentially better clip size & yield,

• Access to wider selections of bonds and liquidity pool

• Better penetration with underwriters in the domestic market

• Direct control over the onshore primary market participation

• Allows you to take part in the entire primary auction process directly instead of relying on alternative means

• Participate under a transparent and standard subscription framework

• Digitalized workflow free from manual paperwork

• Subscription workflow on ePrime - how does it work?

Bond Connect ePrimeA Prospective Northbound Primary Market Access

52

Rep, Trader

Offshore Investor 1 Offshore Investor 2 Offshore Investor 3

OnshoreUnderwriter 2

Rep, TraderRep, Trader



ePrime sets the foundation for the crossborder primary market innovations

• Online cross boarder communication tool between offshore investors and onshore underwriters and issuers

• Standardization of the onshore bond subscription procedures

Establish Counterparty Relationship

Check Deal Information

OrderManagement

See BiddingResults

Allocation Confirmation

CompletedDeals

Bond Connect ePrimeNorthbound Investor Subscription Mechanism (TBC)

53

Feedback/Comments welcomed!

How is the subscription process in the China

onshore market different from offshore?

What are the best practices

in using the platform?

What kind of information would

be available?

Who are the onshore underwriters I should connect with? What are their strengths?

How to get access?

Bond Connect ePrimeWhat’s Next?

54

Panel Discussion:Development Of Green Bond Market In China & Prospects Of Sustainable Investing

Brad Gibson

Co-Head of Asia Pacific Fixed Income,

AllianceBernstein

Shan He

Deputy Director, Treasury and Financial Management

Center,

China Three Gorges Corporation

Daming Cheng

Member of CICC’s IBD Business Development Committee,

Managing Director,

China International Capital Corporation Limited

Moderator:

Submit your questions via the Q&A box

on the right-hand side of your screen

Erik Christianto

Director, ESG Product Specialist,

S&P Global Ratings

Jing WenDeputy Chief Manager, Investment Banking Department,China Construction Bank Corporation

Thank You For Attending

S&P Global Ratings & BCCL Virtual Seminar 2021: Demystifying China Credits

56

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