BEIJING, March 13, 2023-S&P Global (China) Ratings has assigned its preliminary AAA_spc(sf) ratings to the Gongyuanzhicheng 2023-1 Non-Performing Asset Backed Securities Senior Notes to be issued by Zhonghai Trust Co., Ltd. The transaction was originated by Industrial and Commercial Bank of China (ICBC).

We assigned the preliminary rating based on information as of January 31, 2023. We expect to assign and publish our final rating when the trust becomes effective. 

The preliminary rating reflects our opinions according to the analysis of five pillars under S&P Ratings China--Structured Finance Methodology. 

Credit Quality of the Securitized Assets: We analyzed the originator’s operational model, NPL management policy, collection ability and historical collection experience and securitized asset features etc. We estimated the recovery rate for the portfolio to be 41.22% under our AAA_spc(sf) rating stress scenario.

Payment Structure and Cash Flow Mechanics: Based on our cash flow analysis and stress testing, we expect senior notes to be able to pay principal and interest on time and in full under the current notes’ rating, transaction structure and related assumptions. Our analysis and stress scenarios for the transaction include various combinations such as recovery amount, recovery timing, interest rate and expenses. Under our most stressed scenario, the final S&P Global (China) Ratings CE buffer is 0%.

Operational and Administrative Risk: The servicer ICBC has rich experience in managing personal residential mortgage NPL securitization products. We believe the bank’s IT infrastructure and operational model are capable of fulfilling the duties and responsibilities stipulated in the agreement. Although there is no back-up servicer on this transaction, the transaction will set aside a cash reserve to provide liquidity support. We believe the participants in this transaction are capable of fulfilling the duties and responsibilities stipulated in the agreement given their experience and past track record.

Counterparty Risk: ―     Our assessment of counterparty risk takes into account payment interruption risk, account bank risk, commingling risk and set off risk etc. The transaction documents have incorporated various credit quality triggers to mitigate the abovementioned counterparty risk.

Legal and Regulatory Risk: This transaction is structured in accordance with China's Trust Law and China Asset Securitization scheme. We believe the SPT’s legal structure meets the principle of true sale and bankruptcy remoteness in securitization. Through our legal analysis, risks related to borrower notification, priority notice registration, mortgage re-registration, statute of limitation on recovering residential mortgage debt and other legal risk have been sufficiently mitigated by the arrangements stipulated in the transaction documents.

List of Ratings:  

Senior Notes:  AAA_spc(sf)  

Methodology Applied:  

S&P Ratings China--Structured Finance Methodology  

Related Research:  

Commentary: Understanding Our Approach to China Residential Mortgage-Backed Securities

The Post-COVID Recovery | China Outlook 2023

FAQs on Banks’ Nonperforming Assets and Securitization  

Media Contacts:

Sharon Tang, Beijing, (86)10-6569-2988; sharon.tang@spgchinaratings.cn

Analyst Contacts:

Enjie Zhang, Beijing;     enjie.zhang@spgchinaratings.cn

Siyue Zhu, Beijing;     april.zhu@spgchinaratings.cn

Kaiyan Li, Beijing;     kaye.li@spgchinaratings.cn