The Key Elements Of Designing Securitization On Trust Beneficial Rights

The motive of beneficial-right-backed securitization is different from the old NPA-backed securitization. It is a new mode of ABS designed to let enterprises with high credit level make the most of their assets which are short of liquidity their functions in finance, creates a special purpose trust that makes the securitized assets converted to asset rights. Via new laws concerns securitization being published in recent years, trust beneficial rights obtains its legitimacy. However, in the financial community there was little knowledge of new types of underlying asset. Few income-right-based ABS had succeeded and fewer beneficial-right-based ABS was practically accomplished, as were the theoretical study of it.Just few years ago, a deal structure of trust was created by some trust corporations, using the reference of securitization and calling itself "asset beneficial right trust", in purpose of solving estate trust issues. However, this "asset beneficial right trust" is not reasonably defined nor suitable for transferring. The Anxin-Chungao mode was one of those cases. Anxin Trust misunderstood the nature of beneficial right, meanwhile misestimated the risks in the deal structure, which makes different contracts contradict each other.Through securitize the former trust beneficial rights, we can make the deal structure more proper. During the designing process, we should understand the risk points that might happen during the securitization period.A comprehensive understanding straightens legal nature of trust beneficial rights created by special purpose trust, leads to the difference between beneficial-right-based underlying assets and other types of underlying assets.On the other hand, due to the special nature and the difficulty of registration, beneficial right is hard to follow a "true sale", yet still could guarantee the safety of securitization if the initiator has healthy operation, capability of paying, good risk management and credit enhancement. Together with the risk management level and payoff system of securities companies, the program will be able to pay benefits to the investors.This article explains, analyzes, and discusses the nature of beneficial rights and the core questions occurred during the process of beneficial-right-backed securitization. It also picks three important questions:the special purpose trust, the running of SPV, the transferring of beneficial rights, bases on an understanding of the No.49 Order given by China’s Securities Regulatory Commission, hoping to give some positive influence and experiences in managing China’s beneficial-right-based ABS in the future.