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Bonds seen as another financing tool for China’s PPP projects

China launched its first PPP-backed asset-backed securities product last month to finance a sewage and wastewater treatment project worth 840m yuan

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The Chishi Bridge in Yizhang County of Chenzhou City, central China's Hunan Province. PPPs are seen as a means of broadening the financing options available to regional and local governments for future infrastructure development, by introducing private investors. Photo: Xinhua

Bonds may be an alternative financing tool for China’s public private partnership (PPP) projects compared with the asset-backed securities (ABS) being encouraged by the central government.

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China launched its first PPP-backed ABS product last month to finance a sewage and wastewater treatment project worth 840 million yuan (US$121.6). It came two months after Beijing gave the go-ahead for PPP projects to raise funds through securitisation.

PPPs are seen as a means of broadening the financing options available to regional and local governments for infrastructure development, by introducing private investors. An ABS, which may comprise assets such as corporate loans, income receivables or infrastructure charges, has traditionally consisted of a pool of projects.

“ABS should come in when one company has 10 [PPP] projects in operation, and it wants to club them together and refinance in the market for cash flows,” said Vivian Tsang, associate managing director at Moody’s.

“But it’ s very hard to club PPP projects together, as unlike auto loans which are generic, each PPP project is unique in terms of its business and local governments.

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“An ABS backed by a club of PPP projects involves different local governments and provinces. These PPP projects will have different credit qualities which have to be evaluated separately. That’s why currently China’s PPP-backed ABSs are backed by a single asset.

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