Credit Risk Study Of Green Asset Securitization

As an innovative financial instrument,green asset securitization has many advantages such as improving the liquidity of assets,broadening low-cost financing channels and improving the credit rating of assets,and has seen rapid development in recent years.Both the scale of issuance and the number of issuance have been greatly enhanced.By the end of 2022,China had issued a total of 172 green asset securitization products,with a cumulative issue size of RMB 272.222 billion.However,as the national subsidy gap for the green industry increases year by year,it has led many renewable energy enterprises into the dangerous situation of cash flow depletion,especially private enterprises are in a more difficult situation,and some wind power and photovoltaic power generation projects have defaulted because they do not have enough cash flow to repay their loans.Since the securitization of green assets involves a large number of participants and a complex process,there are a series of credit risks that threaten the sound operation of green asset securitization,and it is especially essential to investigate the credit risk and its management strategies in green asset securitization.Three Gorges Energy,as a leading operator in the first tier of domestic new energy power generation,issued the first domestic "carbon neutral" concept ABN product in March 2021,which is based on the additional income from renewable energy tariffs,greatly increasing the types of underlying assets for green asset securitization and is somewhat representative.Therefore,the analysis and assessment of its credit risk can provide insights for other green enterprises to reduce credit risk in green asset securitization.This paper firstly analyzes the influencing factors of credit risk of green asset securitization based on credit enhancement theory,risk segregation theory and credit risk control theory.Then,China Three Gorges Renewables Green ABN is picked as a Case object for analysis.The credit risk profile of China Three Gorges Renewables Green ABN was firstly analyzed qualitatively from three aspects of the program:the transaction subject,the underlying assets and the transaction structure.It is found that:(1)the underlying assets are green in nature,but the distribution of debtors is too concentrated and the remaining aging period is short,which requires high shortterm solvency of the original equity holders and strong credit dependence;(2)the credit enhancement approach has the drawback of excessive subject dependence;(3)green asset securitization product layering design is relatively single.The credit risk of Three Gorges Energy green ABNs was then quantitatively analyzed using performance capability analysis,KMV model,Z-Score model and cash flow forecast.It is found that:(1)the overall performance ability of Three Gorges Energy is good,but the quality of Three Gorges Energy’s cash collection needs to be improved due to the long cash return cycle of electricity subsidy payments,and the short-term debt servicing ability is weak;(2)the default distance of Three Gorges Energy is relatively stable,and the theoretical expected default rate weakens year by year,and the company’s credit risk is on a decreasing trend;(3)the asset manager,BOCOM International Trust Company Limited,has the Z-score from 2018 is always in the safe range,the financial risk is small,and the company’s credit status is good.(4)Although the cash flow can essentially override the principal and interest of the securitization but not enough coverage.Based on the process and results of the above analysis,some strengths and weaknesses of the Three Gorges Energy Green ABN project can be reflected.Strengths of the project:Three Gorges Energy Green ABN is better prevented in terms of liquidity and account management;weaknesses of the project:(1)too high concentration of underlying assets;(2)lack of layering design of the product;(3)liquidity difference payment mechanism does not create valid credit enhancement.Finally,this paper proposes optimization suggestions for credit risk management in terms of product layering,increasing the types of underlying assets,and controlling the quality of underlying assets,etc.These recommendations are beneficial to development of green asset securitization.The proposal facilitate the development of green asset securitization and provides a reference for relevant green companies to implement green asset securitization.