China Environmental:Policy on PPP securitization to help with industry financing;Buy BEW,CEW

MoF's Notice on PPP Securitization...

    Ministry of Finance published Notice on Public-Private Partnership ProjectSecuritization (MoF policy paper #55) after market close on 19 June. TheNotice made clear that PPP projects of all types (end-user payment/governmentpayment/viability gap funding) are encouraged to issue ABS (asset-backedsecurities). Water and environmental projects are among the projects to beprioritized and projects in Xiong'an New Area, Beijing-Tianjin-Hebei region,Yangtze River Economic Zone and Belt and Road regions will also be prioritized.

    In addition, the Notice mentioned there is no recourse to the ABS issuer in casethere is any payment deficiency from end-users/governments (i.e. ABS issuersdo not have to make up for the difference between payments due and paymentsreceived).

    ...should help with industry financing

    We think the Notice should help to clear previous market concerns that PPPprojects with no/not sufficient end-user payments cannot be securitized andtherefore almost all risks for such projects would be borne by the financialinstitutions providing financing. Going forward, we expect financial institutionsto be less hesitant in participating in PPP projects financing in various forms(including investment funds), now that the latest policy on PPP ABS is essentiallyproviding risk management mechanism.