China Pushing to Expand CLO Market

Following on some official indications from the PRC Central Bank last quarter, Reuters ran an article this week indicating that Chinese officials are anxious to open their bank loan markets up to foreign companies and to see securitization become a primary mechanism for rebalancing balance sheet risk among their domestic lenders.  It seems they have been paying attention to the benefits brought to both the US and European credit markets from the recovery of the market for CLO’s.

However, with both European and US regulators still kicking the can around about risk retention for CLO managers in their own markets, it may be interesting to see if Chinese officials offer a more attractive environment for CLO managers, particularly smaller manager firms which are decidedly disadvantaged in markets that require high retention.

It would seem that the sky is the limit in terms of available product in the China loan market.  From the Reuters article………. “About 90 billion yuan ($14.8 billion) of CLO products have been issued in China’s interbank market since 2005, according to Reuters calculations based on central bank statements.  That is a tiny fraction of the 70 trillion yuan in local currency loans outstanding at the end of September.”

That could mean an available market in excess of US$1 Trillion.  Consider that US CLO issuance may top out at US$85 Billion in 2013  and has been hailed as a poster child for the recovery of the global securitization market.  We are thinking that some managers may have already packed a bag!