To put it simply, asset securitization is to package a group of assets with poor liquidity but capable of generating stable cash flow in the future, put them into a special purpose vehicle, divide and reorganize them, and carry out credit through structured design. The securities are upgraded and then divided into tranches of securities and issued to investors. It is a financing method to revitalize the illiquid assets of enterprises.

To give a simple example, Jane runs a coffee shop. The business is booming and it can generate a stable cash flow of 5,000 yuan every day. So she wants to raise funds to open more stores. However, because there is no collateral, the bank cannot borrow money. It was easy to get, so her friend thought of a way to fund her, which was to transfer the stable cash flow of 5,000 yuan per day as basic assets to S institutions such as securities firms and investment banks, and sell it to bond investors in the form of securities. ane raised funds to open a second and third coffee shop.

Is asset securitization involved in food, clothing, housing and transportation?

Ant Huabei, JD.com Baitiao, and some banks all use credit card loans as basic assets and issue asset securitization products. Let’s take Huabei as an example. When consuming, users can prepay the amount and enjoy the shopping experience of consuming first and paying later. The borrowed money must be repaid with principal and interest. With so many people using Huabei, it means there is a stable interest income every month, which is a stable cash flow as the basic asset. Ant Financial packages these loans into bonds and sells them to investors in the market. After the product is sold, everyone benefits. Bond investors bought a financial product with a stable yield of 4-5. Ant Financial is the most happy, because the interest rate of Huabei is around 15%, and the interest rate of the bonds sold is around 4-5%, with an interest rate difference of 10% in the middle.

Reits is also a type of asset securitization. It uses the income generated by real estate, such as rent, as a basic asset, packages it into funds, and divides it into many small funds. Maybe you can't afford a house, but you can buy one or several REITs fund shares. The prices of REITs will change with property prices.

Many roads, bridges, tunnels, and large-scale amusement parks in cities today are completed through asset securitization. It is to package the future tolls of the highway and the future ticket revenue of the park into bonds and sell them on the market to raise funds, and then build this tunnel or build this theme park.

What are the advantages and risks of asset securitization?

In recent years, the state has strongly supported enterprises to convert accounts receivable, financial leases, corporate financing claims and other claims formed during the production and operation process into As well as legally held commercial properties, infrastructure and other real estate, as well as income rights such as infrastructure project income, asset securitization products are issued as basic assets to revitalize the company's existing assets and help the company develop.

Asset securitization allows low-rated companies to obtain direct financing, as long as such companies have good assets and relatively stable cash flow. Emphasis is placed on asset quality over corporate entities. They do not have high requirements for corporate performance and do not pay too much attention to whether the company is profitable. Moreover, the basic assets are completely isolated from the business entity. Even if the entity goes bankrupt or has a dispute, this basic asset will generally not be involved.

However, there are also many risks in this type of product. For example, asset securitization has poor ability to respond to systemic risks and can easily cause chain reactions. This is how the subprime mortgage crisis in the United States came about in 2007. Home loans are regarded as the basic asset. When the economy goes down and there is a problem in one link, the entire financial market collapses.