HSBC has teamed up with Allianz Global Investors (AllianzGI) to wrap trade finance assets into notes, in what the bank says is the first trade finance securitisation initiative of its kind.

Unlike more traditional trade finance securitisation models, where an underlying book of business is packaged up and divided into different risk segments before being placed with investors, the HSBC-AllianzGI model operates on a transaction-by-transaction basis. In short, trade finance assets originated by HSBC’s global trade and receivables finance (GTRF) business will be converted into notes that the newly-created Allianz Working Capital Fund (Alwoca) will buy and offer to AllianzGI clients later this year.

“By doing this on a transaction-by-transaction basis, we have the ability to choose which transactions we put in, and it is transparent to the investors to choose which assets they want to invest in or not,” Surath Sengupta, global head of trade portfolio management and distribution at HSBC, tells GTR. “What we are effectively doing is getting a transaction and then converting it into a format that investors understand, which is a securities format, and hence they can invest in it.”

Under this model, trade finance assets, from traditional products such as trade loans to structured solutions like supply chain and receivables finance, will be put into a special purpose vehicle (SPV). These assets have different risk profiles and typically short tenors, such as 60-day fixed term corporate payables. AllianzGI then acts as portfolio manager for the SPV, selecting the transactions purchased. The SPV’s assets are then wrapped into notes that Alwoca will buy, enabling the fund to take exposure to trade assets through a securities format. Alwoca is seeking to have a duration of below one year and generate returns significantly in excess of those available in public markets for the same duration.

HSBC and AllianzGI will initially use European corporate trade finance assets for their notes before expanding to include other markets as demand increases. The first transaction – a payables finance transaction – has already been securitised, GTR has learned, although HSBC was not able to disclose the amount or timing of the deal.

Trade finance securitisation is increasingly seen as a viable solution for closing the trade finance gap. At present, banks provide about US$10tn in trade finance each year to companies, while the secondary market for these assets is a paltry US$300bn, much of which comprises bilateral trading between banks. “Given that global demand for trade finance already outstrips supply by about US$1.5tn a year, we see huge potential for a thriving secondary market to stimulate trade in goods and services – the lifeblood of the global economy,” says Sengupta. “We’re aiming for nothing less than a major reform of the trade finance market that will benefit exporters, importers and investors keen to buy into real economy transactions. We at HSBC provide over US$750bn of trade finance each year, and by distributing more trade assets we can support more businesses.”

Recognising the need to increase access to liquidity for trade finance assets, HSBC’s GTRF business has built trade asset distribution hubs in Hong Kong, Singapore, London and New York over the past three years, increasing distribution volumes of trade finance assets to US$32bn in 2018, up from US$2bn in 2016. The bank has also joined the Trade Finance Distribution Initiative, led by Tradeteq, a technology platform launched last year, which will create common data standards and definitions for global trade finance asset distribution.