10 January 2019

KWM advises CUL&TECHFLCO on its debut of the innovative intellectual asset-backed securities, leading the in-depth integration of intellectual property and finance

On 14 December 2018, "First Capital-CUL&TECHFLCO Asset-backed Specific Plan Phase I" ("CUL&TECHFLCO ABS Phase I"), as China's first asset-backed securities with the financial leases of intellectual property as the underlying asset, obtained the No Objection Letter for its listing on Shenzhen Stock Exchange ("SZSE"). The CUL&TECHFLCO ABS Phase I was secured by pools of the underlying assets of the originator, Beijing Culture & Technology Financial Leasing Co., Ltd. (“CUL&TECHFLCO”), including 51 industrial property rights and copyrights in multiple sub-sectors as the objects of financial leases. The offering is at the value of RMB 733 million. The CUL&TECHFLCO ABS Phase I, as an innovative securitization product in China, features specialization and pioneership in deeply integrating intellectual property and finance. 

The success of this project relies on strong support, thoughtful guidance, joint promotion and efficient coordination by the competent authorities. The Publicity Department of the Beijing Municipal Committee of CPC, State-owned Cultural Assets Supervision and Administration Office of the People's Government of Beijing Municipality, Beijing Intellectual Property Office and Beijing Cultural Investment Development Group Co., Ltd. (“BCIDG”) were involved in the project and SZSE was also invited to participate in this project. The parties conducted in-depth research and communication on issues such as IP securitization and product issuance. The SZSE also provided substantial support for the launch of this product. During project preparation, the National Intellectual Property Administration and China Securities Regulatory Commission took lead in setting up the “Working Group for Promotion of the Pilot IP Securitization”. The close cooperation among the competent authorities, the issuance examination body and the issuer effectively ensured the successful offering of the CUL&TECHFLCO ABS Phase I.

The project has drawn extensive attention from the media and the industry. In the project, intellectual property has been deemed equal to physical assets in terms of value. Accordingly, it greatly speeds up realization of intellectual property's capital value, marking a new level of intellectual property operation in China; and it is also a comprehensive reflection of the results of China's efforts in building the intellectual property operation system, and explored an efficient and cost-effective channel for the innovative direct flow of capital from virtual economy to real economy. The launch of this product will effectively promote the conversion of China's high-tech and copyright, improve the independent innovation capability of enterprises, and lead the practice of securitization of intellectual property in China. It is of great significance in China's “Intellectual Property + Finance” innovation and driving the entire IP operation chain. The switch of the listing market of CUL&TECHFLCO’s asset backed securitization product backed by intellectual property financial leases from Inter-Institutional Quoting and Service System to Shenzhen Stock Exchange, also signified the market's recognition of intellectual property financialization. 

CUL&TECHFLCO was established in 2014 with a registered capital of RMB 2.19 billion. It has pioneered in the financial lease of cultural assets in China, especially intangible cultural assets. CUL&TECHFLCO is a foreign-invested financial leasing company with the largest registered capital in Beijing, and is also one of the top ten foreign-invested financial leasing companies in China. CUL&TECHFLCO is the original owner of the underlying assets for the project, and First Capital Securities Co., Ltd. (“First Capital”) acts as the administrator to set up an asset backed specific plan, and to issue asset-backed securities leveraging on the aforementioned underlying assets. This asset backed specific plan also introduced BCIDG as a warrantor of shortfall payment. The project, in its entirety, not only meets the substantive requirements of asset securitization in terms of underlying assets, but also satisfies the practical needs of intellectual property rights conversion for cultural and technological enterprises. It has unique advantages of diversified underlying assets, well-established risk control system, and high credit rating of the issuers.

As the legal counsel to CUL&TECHFLCO, the KWM team has advised CUL&TECHFLCO with all aspects of work in the issuance of CUL&TECHFLCO ABS Phase I by providing solutions and advice on relevant legal issues. The project is led by partner Eddie Hu and senior associate Chen Fushen. Partner Cecilia Lou and IP team have rendered support in several important technical aspects of intellectual property in the project.

Partner Eddie Hu said, “Thanks to the officials of the competent authorities at all levels for their thoughtful guidance and support! Thanks to the support of the teams involved in the project! KWM was honored to participate in such a groundbreaking milestone project. With years of experience and in-depth insights in securitization, combined with our substantial resources and strengths in comprehensive legal services, we are able to satisfy the country's innovation demands in industry development, financial products and of cross-sectors with professional services."

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