Study On Securitization Financing Of Mining Right

Asset securitization is a financial innovation. For the sponsored enterprises, thefundamental purpose of asset securitization is to expand financing channels and reducefinancing costs from the view of micro-economic benefits in terms of market participants; andfor the investors, asset securitization can provide more investment products, reduce thenon-systemic risk of investment. Many mining companies, especially the medium and smallscale mining companies(SMEs), are facing a shortage of funds and financing difficulty inChina. From the development experience of developed countries in the past few decades, thenew type of financing asset securitization can be a good choice to deal with this situationfaced in China. Base on China’s current situation, this article investigated the necessity andfeasibility of securitization of mining right in mining market and capital market firs; then, ittake the coal enterprises as example, explored the specific implementation of the mining rightsecuritization and corresponding operating mode.Based on the problems existed in mining right market, this article drew a conclusion ofthat, the mining right securitization has important necessity to the mining capital market, toovercome the endogenous defects of mining right market, as well as to expand the financingchannels of mining enterprise, disperse the investment risk of investors, Optimize the capitalallocation of mining enterprise. The article also analysed the four problems (underlying asset,legal system, risk supervision, quality of intermediary service agencies) during the process ofimplementation, summed up the conclusion of that the mining right securitization is feasible.In this article, the value of mining right is given through option pricing method, based on thedata of coal prices and cost during1990~2008, and related parameters. Then, a monte-carlomethod was used to simulate the cash flow of different scenarios and the value of the assetpool was provided. Finally, whole asset pool was packaged into bonds to sell to investorsthrough the SPV intermediaries. According to the judgment standard about the rationality ofmining right securitization (the actual yields and principal recycling of bond to investors),the research simulated three different scenarios (five categories of bonds, three categories ofbonds, three categories of bonds after credit enhancement), calculated the real yields and theprincipal recovery cycle, put forward a conclusion of that of in a situation of creditenhancement, the method of mining right securitization financing is feasible. Namely, in thissituation, investors can increase investment channels, win benefit; mining companies canincrease financing channels, reduce the cost of financing. At the end of the paper, seven aspects of risk (risk of early payments, risk of deferredcompensation payment, risk of interest rate, default risk, the risk of intermediary institutions,fund management risk, legal risk) faced during the process of mining right securitization.Contrapose to these risks, the article proposes the methods of risk management, and somesuggestions are also raised, such as the perfection of legal system, strengthening the basicconstruction of market, development of local agencies and professionals of assetsecuritization market.