See Disclosure Appendix A1 for the Analyst Certification and Other Disclosures.

F I X E D

I N C O M E & A N A L Y S I S

15 MAY 2006

S T R A T E G Y H O N G

K O N G

Structured Credit Strategy

ASIA PACIFIC

Shuguang Mao
852-2501-2909
shuguang.mao@citigroup.com

Hong Kong

Asset Securitization Market in Asia

A Primer and Overview
Global asset securitization markets have grown rapidly in the US, Europe, Australia and Japan. Similar growth has not yet been seen in most Asian countries The asset securitization process is reviewed and analysed by asset type and currency composition The Asian securitization market can grow only after key prerequisites are futher developed The Asian asset securitization market brings investment opportunities that are otherwise not accessible Asset securitization provides asset diversification and has better returns compared to other credit sectors Risks involved in securitization markets are outlined. Securitization itself does not remove risks, but it can and does re-arrange them in structured products

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Contents
Asset Securitization Market in Asia A Primer and Overview Global Asset Securitization Markets: Overview.................................................................................. 3 Securitization Market in Asia: A Developing Story ............................................................................ 5 What Is Asset Securitization? .............................................................................................................. 7 Securitization Market Readiness in Asia ............................................................................................. 9 Why Invest in Asian Securitization Markets ..................................................................................... 10 Summary............................................................................................................................................ 13 3

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Asset Securitization Market in Asia A Primer and Overview

Global Asset Securitization Markets: Overview
Global asset securitization market has registered rapid growth for decades

Since the first securitization transaction in the 1970s, the asset securitization market has grown into a multi-trillion dollar market and is by far the largest fixed income security type. The US asset-backed market continues to be the worlds largest market with all kinds of securitized assets. Many acronyms, now familiar by many investors, are securitized products. For example: ABS (asset-backed securities), RMBS (residential mortgage-backed securities), CMBS (commercial mortgage-backed securities), CMOs (collateralized mortgage obligations), CLOs (collateralized loan obligations) and CDOs (collateralized debt obligations).
Figure 1. Global Asset-Backed Security Annual Issuance by Region (US Dollars in Billions), 1997-2004

Source: Citigroup.

As of 2005, among the US$25trn outstanding amount in fixed income securities, there were US$5.9trn in MBS and US$2.0trn in ABS, representing nearly one-third of the market.
Figure 2. Component of US Debt Markets Represented by the Bond Market Association, 4Q05
New Issue Volume (Billion) Daily Trading Volume (Billion) Volume of Securities Outstanding (Trillion)

Municipal Securities Marketable Treasury Securities Federal Agency Debt Securities Mortgage-Related Securities Asset Backed Securities Money Market Instruments Corporate Debt Securities Total
Source: The Bond Market Association.

$407.7 $746.3 $669.0 $1,919.5 $1,095.9 NA $678.9 $5,517.300

$16.9 $554.4 $78.8 $251.8 NA NA $21.0 NA

$2.2 $4.2 $2.6 $5.9 $2.0 $3.5 $5.0 $25.3

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Figure 3. US ABS Outstanding by Credit Type, Showing Historical Changes (US Dollars in Billions), 1995 4Q05
2500

Automobile Home Equity

2000

Credit Card Manufactured Housing Equipment Leases Other

Student Loan CBO/CDO

1500

1000

500

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005:Q4

Source: The Bond Market Association.

The European asset securitization market is also fully developed

The European asset securitization market is about a quarter of the size of the US market and is also fully developed, with similar asset type structures as the US market.
Figure 4. Total European Annual ABS/MBS/CDO Issuance by Asset Type (Euros Billion Equivalent)

Source: Citigroup.

The first markets to adopt securitization in the Asia-Pacific region were Australia and Japan. In Australia, the residential mortgage sector was securitized in the early 1990s. Since then, approximately US$200bn of assets has been securitized. In recent years, many new asset classes have been securitized, such as CMBS and CDOs, indicating a maturing market. In Japan, based on the information from the Trust Companies Associations of Japan, the outstanding balance of assets held in trusts in 2004 was 29trn. Private transactions continue to represent a large percentage of the market.
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Figure 5. Asset Class Breakdown in Australia and Japan, as of 2004

Source: Fitch.

Securitization Market in Asia: A Developing Story

Rest of Asia Still a developing story

The structured finance market in the rest of the Asian is split into domestic (or local currency) and cross border issuance. The cross border issuance is one that is assigned an international rating and is therefore directly comparable with international ratings assigned in markets such as Australia, Japan, the US and most 1 of Europe. Local currency leads cross border issuance in both number of deals and volume, in a roughly 4:1 ratio. Among the countries in Asia ex-Japan, South Korea is the dominant component in both local currency and cross border issuance. South Korea consists of approximately 75% of the local currency asset securitization market and about 60% of the cross border asset securitization market in Asia ex Japan.
Figure 6. Total Asia (excluding Japan) Securitization Issuance, US Dollar Equivalent, as of 2005
US$ million Korea Taiwan India Malaysia Singapore China Indonesia Hong Kong Thailand Sri Lanka Grand Total Local Currency Volume # of Issue 25,011.70 227 2,972.37 12 2,408.00 52 1,469.28 8 0 890.34 2 0 435.67 2 152.47 2 7.08 1 33,346.90 306 Cross Border Volume # of Issue 3,595.50 9 305.87 1 0 0 1,121.05 4 0 600.00 1 0 0 0 5,622.42 15 All Types Volume # of Issue 28,607.20 236 3,278.24 13 2,408.00 52 1,469.28 8 1,121.05 4 890.34 2 600.00 1 435.67 2 152.47 2 7.08 1 38,969.33 321

$ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $

$ $ $ $ $ $ $ $ $ $ $

Source: Thomson Financial, Financial Supervisory Service for Korea, Financial Supervisory Commission of Taiwan, Prime Database for India, and China Government Securities Depository Trust & Clearing Co.

Asia Pacific 2005 Review and 2006 Outlook, Fitch Ratings, Structured Finance Special Report, 13 March, 2006

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Singapore, Malaysia, and India are next in the level of market maturity, but over time we expect more countries such as Taiwan, Thailand, and Indonesia to develop rapidly.
Figure 7. Historical Total Annual Securitization Issuance in Asia Excluding Japan and South Korea (US Dollars in Millions Equivalent), 20002005
12000

India
10000

Taiwan Malaysia Hong Kong Sri Lanka

Singapore Indonesia Thailand

8000

6000

4000

2000

0 2000 2001 2002 2003 2004 2005

Source; Thomson Financial, Citigroup.

Compared to the US market on the asset type securitized, the Asian market shows a higher proportion in autos, credit cards and CBOs. Also, the cross-border only consists of about 15% of the Asia securitization market. Local currency securitization is and probably will continue to be the driving force in this market.
Figure 8. Securitized Asset Type Composition and Currency Composition in the Asian Securitization Market (excluding Japan), as of 2005
RMBS 13% Rental 2% NPL 11% Asian Market Auto 21%
Thai Baht 0.5% Hong Kong Dollar 1% Others 2% Malaysian Ringgit 4% USD 9% EURO Yen 0.5% 6%

Others 1%

Lease 3% CMBS 6% CLO 4% CBO 22% Cards 17%

Indian Rupee 6%

Taiwanese Dollar 8%

Korean Won 64%

Source: Thomson Financial, Citigroup.

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What Is Asset Securitization?

Asset securitization converts financial assets into marketable securities

Asset securitization can be described as the monetization of financial assets. The assets can be short term, such as receivables, or long term, such as residential 2 mortgages . The sale of these assets is considered as a true sale for accounting and legal purposes. The asset receivables are packaged in the form of securities and sold to investors. This process of packaging is referred to as securitization. Figure 9 illustrates a typical asset securitization process. In this case, the lender, typically a financial institution, provides loans to borrowers or obligors. Subsequently, the lender sells the loans to a special purpose vehicle (SPV), which is an independent, specially formed, single-purpose entity in the form of a company or trust. The SPV usually structures tranches of debt with different credit and cash flow characteristics based on underlying assets. Facilitated by credit enhancement techniques, the SPV can create tranches with much higher credit ratings than that of the loan and of the originator. Different securitized tranches are subsequently sold to different investors, meeting their required returns within their risk tolerance. In the asset securitization market, 80-90% of ABS issue floating rate coupons to reduce interest rate risk.
Figure 9. Asset Securitization Process

Special Purpose Vehicle (SPV) Provide ratings on Borrowers

Cash Loan Proceeds collection Obligations and client management asset securitization

Rating Agency
AAA Investor

AAA
Proceeds Sale Loans Ensure Terms & Protect Investors Cash Collection Appoint and Monitor Performance

A BBB

Proceeds Security Coupon/Principal

A-Inve stor BBB-Investor

Lender

Loan obligations

Originator

Serve As

Servicer
Source: Citigroup.

Trustee

We describe the asset securitization process in more detail: Special Purpose Vehicle (SPV). The SPV is the key to asset securitization, and it must be insulated to ensure that if credit events happen to the originator, including bankruptcy, it will not affect the SPV, hence, the term bankruptcy remote Role of the Rating Agency. All three of the major rating agencies (Moodys, S&P and Fitch) are involved in rating securitization transactions. In developed asset securitization markets, investors usually require at least

A securitization primer: Part One, Andrew Lin, Canadian Treasurer, 1999, August/September, 22-24

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two rating agencies while in less developed markets one rating is acceptable and investors have no particular preference among the agencies While each rating agency has its own criteria and methodology for assessing the ratings of securitization transactions, the underlying principles of rating approaches are same across all asset classes. Four key areas examined in the rating analysis are: Portfolio characteristics, macroeconomic factors, asset transferor, and transaction structure. Ratings for asset securitization provide investors with a common platform to evaluate credit risk among tranches and/or between different asset securitization. Rating agencies also continue to assess the performance of the assets and the credit enhancement levels throughout the life of securitization transactions, providing constant comfort and valuation benchmarks for investors and the trustee. Role of a Trustee. The trustee is an independent third party from the seller, and it officially owns the assets. A trustee appoints a servicer and monitors the servicer to ensure that there is no interference in the transfer of funds from the receivables to the SPV. A trustee ensures that investors are paid in accordance with the terms of the securities. The trustee also checks credit ratings from rating agencies. To conclude, the trustee is set up to manage securitized assets and hence protect the rights of investors Role of a Servicer. While the trustee appoints a servicer, quite often the originator performs this function, as it has client access and service capacity. Still, a back-up servicer is usually appointed, which is unrelated to the originator. In case the originator cannot continue the task, for example, due to bankruptcy, the back-up servicer will continue the servicing and deliver loan obligations from obligators to the SPV Credit Enhancement. While there are many techniques to enhance the credit ratings in asset securitization, they basically can be divided into two groups: internal or external credit enhancements Common internal credit enhancements include: 1) over collateralization; 2) excess spread; 3) cash reserves; and 4) subordination. Common external credit enhancements include: 1) letters of credit; 2) credit guarantees; 3) liquidity facilities such as credit lines; 4) pool insurance; and 5) ISDA. Alternatively, securitization triggers related to portfolio performance, servicer, tax and regulatory changes can be used to protect investors. Asset securitization helps lenders to remove unwanted and/or illiquid assets from balance sheets, reduce the level of capital from regulatory requirements and provide lenders with a very attractive financing opportunity. In summary, through the true sale of receivables, asset securitization effectively converts assets into marketable securities and transfers the rights and the major risks 3 of assets to investors .

Securitisation and bank liquidity in South Africa, Andrea Saayman, 2003, Potchefstroom University for CHE

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Securitization Market Readiness in Asia

South Korea is the most developed, followed by Hong Kong, India, Malaysia and Singapore

Among Asian countries, the development of asset securitization markets is unbalanced. Figure 10 illustrates the market readiness in selected Asian countries. The bubble indicates the relative total amount for both local and cross border issuance in 2005 (in US dollars) from Asian emerging country asset securitization markets. South Korea is quite mature and developed in asset securitization. Hong Kong is well developed, but seems to lack volume of issuance. India is rapidly picking up more securitization deals, especially in the local currency market.
Figure 10. Overview of the Market Readiness among Asian Countries, Excluding Japan as of 4Q05

Source: Thomson Financial, Citigroup, Standard Chartered.

Market readiness Whats needed for the development of

There are several key prerequisites for asset securitization markets A lack of these factors explains the slow pickup in some Asian countries

securitization markets?

Securitization may not be a viable source of funding in all countries. Key prerequisites are needed: 1) legal frameworks; 2) regulatory frameworks; and 3) capital market development. Legal Framework. Before securitization transition can be undertaken, a countrys legal system must posses certain characteristics, such as the ability to transfer the ownership of assets and risk from lenders to SPVs Regulatory Framework. Regulatory bodies with jurisdiction over the client transaction must be supportive of the securitization market. In Asia, most Asian governments are becoming increasingly supportive of the securitization financing approaches Capital Market Development. In regard to asset securitization in local markets, it demands a well developed debt capital market (commercial paper and bonds), a diversified asset pool with reasonable size, established rating agency that can assess risk in securitized assets, and also sophisticated investors who understand and know how to evaluate and invest in securitized products

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Bank Liquidity. Another reason that may explain the slow adoption of asset securitization in Asia may be due to a high savings rate at about 40% in most Asian countries. This huge pool of savings allows banks to view mortgage loans as their premier assets. Backed by high savings, banks can offer mortgages at such a low margin that makes them uneconomical for asset securitization. In this case, banks do not wish to remove such assets from their balance sheets.

Why Invest in Asian Securitization Markets

The securitization markets in Asian emerging market countries have great potential 4 considering the relative issuance as a percentage of GDP .
Figure 11. Securitization Issuance as % of GDP from Different Regions, as of 2005

Source: Standard & Poors.

Portfolio diversification and extra yield are two main reasons for investing in the asset securitization market

The Upside

Investors with access to an asset securitization market should consider investments in this product. Key justifications include: 1) portfolio diversification; 2) extra yield as 5 compared to similarly rated corporate names ; and 3) liquidity. Diversification. With the sale of underlying assets from an originator to an SPV and with the application of structuring techniques, securitized assets are considered to be a different borrowers debt. The ratings are no longer only associated with the originator, but with many other factors, such as the structure, SPV and servicer Investors can diversify their portfolios as new names from the structured market are added and consequently shift credit risks from the originator to the borrowers, SPV and the securitization structure. With improving consumer credit in Asia, securitized assets provide investment opportunities for profiting from the rapid wealth creation in the region. Extra Return. The main benefit is the superior return or spread than what is generally available on corporate or sovereign debt of a similar rating
4 5

Unlocking the benefits of securitization in emerging Asia, Peter Eastham, Standard & Poors, 5 May, 2006. Asset Securitization in Asia, Ian H. Giddy, New York University, 2003.

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High Quality Ratings. More than 95% of all ABS issued in the US market is investment grade. Default rates are much lower than similarly rated corporate bonds Stable Rating. Based on S&P rating transition study, in the US market, nearly 99% of AAA rated ABS names maintain same rating one year after issuance, in contrast to 89% for AAA corporate bonds. Consistent with the rating stability, structured products has much lower default rate compared to corporate bonds
Figure 12. US Downgrade Rates across Corporate and Structured Finance Asset Classes, 2005 versus Long-Term Average

Source: S&P, Citigroup.

Figure 13. Global Structured Finance 2005 Rating Transition by Region and Sector, as of 31 December 2005
Region/Sector Start # of Ratings Stable (%) Upgrade (%) Downgrade (%) Near Default (%) Default (%)

U.S. ABS U.S. CDO U.S. CMBS U.S. RMBS U.S. Single-Issue Synthetics U.S. Corporate Bonds Euro. ABS Euro. CDO Euro. CMBS Euro. RMBS Euro. Single-Issue Synthetics Euro. Corporate Bonds Asia (non-Japan) Asia ex-Japan Corporate Bond Australia/New Zealand Australia/New Zealand Corporates Canada Canada Corporate Bonds Japan Japan Corporate Bonds Latin America/Emerg. Mkt. Latin America/EM/Corporate Bonds Total Structured Finance Total Corporate Bonds+
Source: S&P, Citigroup.

3,728 3,917 4,353 17,674 879 2,866 592 2,552 430 1,190 276 941 51 314 878 167 265 247 897 347 114 771 37,796 5,416

93.43 93.16 76.29 91.45 81.91 71.35 95.78 92.71 91.16 93.36 91.30 68.97 86.27 58.28 95.56 76.65 85.28 73.68 89.19 64.84 82.46 63.81 90.03 69.81

4.75 3.47 21.36 7.91 10.58 9.11 2.36 3.41 6.51 6.30 3.26 8.93 11.76 34.08 3.42 6.59 14.72 6.07 8.58 26.22 16.67 25.29 8.25 12.26

1.82 3.37 2.34 0.64 7.51 12.14 1.86 3.88 2.33 0.34 5.43 11.37 1.96 2.87 1.03 9.58 0.00 8.50 2.23 1.73 0.88 2.46 1.72 9.05

0.00 0.38 0.00 0.01 0.00 N.A. 0.51 0.00 0.00 0.00 0.00 N.A. 0.00 N.A. 0.00 N.A. 0.00 N.A. 0.00 N.A. 0.00 N.A. 0.05 N.A.

0.97 0.56 0.51 0.19 0.57 0.91 1.18 0.00 0.00 0.00 0.00 0.11 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.29 0.00 0.13 0.33 0.55

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Access and Liquidity. Quite often, the securitization structure offers far greater liquidity than the loans backing the transactions. Plus, many markets, such as local auto loan markets, are accessible only through the securitization market Flexibility. With the flexibility in security structuring, investors such as institutional buyers with restrictions on investment grade only can also invest in this market
The Downside
There are risks in asset securitization

While asset securitization provides many benefits, investors should make the effort to understand the complex securitization structure and the risks involved. All rating agencies have developed procedures to assess the securitization of assets, and a review of the risk factors that rating agencies consider should help investors better understand the risks involved in asset securitization. The following are risks as recognized by all of the rating agencies : Credit Risk. This is the default risk of underlying borrowers such as car owners in automobile loan securitization. Usually a predictable loan loss ratio is priced in the structure. One should focus on the variations in default and delinquency rates and factors that may trigger such changes Sovereign Risk. When all of the underlying assets are in one country and investors are in another, sovereign nations may interfere with cross border cash flow through extra taxes, exchange controls and other measures. To mitigate this risk, an offshore SPV and a foreign guarantor are implemented to safeguard the transactions Servicer Performance Risk. This risk emerges when the servicer, usually the originator of the assets, fails to collect principal and interest. To alleviate this risk, the trustee usually appoints a third party not associated with the originator as a backup servicer Interest Rate Risk. This often happens in the case of fixed coupon payments while the investors liability is market-based. To prevent this, the SPV can enter an interest rate swap (fixed/floating) that gives investors floating coupons Currency Risk. This risk arises when an issue is denominated in a currency that investors do not wish to hold. A currency swap can be used to transform the local currency to the desired payment currency, such as US dollars Prepayment Risk. Payments in excess of the scheduled principal payments are referred to as prepayments. This usually happens when borrowers can refinance at a cheaper cost. Consequently, investors face the problem of reinvesting at lower rates. The prepayment risk cannot be hedged perfectly, but it can be mitigated, for example, by using a redirection technique as in a CMO structure Legal Risk. The SPV is designed such that it is bankruptcy-remote. But when the originator indeed defaults, how to assume full control over the cash
6

Unlocking the benefits of securitization in emerging Asia, Peter Eastham, Standard & Poors, 5 May, 2006.

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collection could involve legal issues. In some Asian jurisdictions, this can be a challenge Liquidity Risk. This happens when the cash flow falls short when interest or principal payments are due. Other cash flow relocation and credit enhancements such as cash reserves, structured cash flows and third party guarantors can help prevent or lower this risk Swap Counterparty Risk. For interest rate swaps and currency swaps, additional counterparty risk will be involved. This risk can be minimized by choosing a counterparty of higher credit quality
Securitization structure does not remove risk, but rather rearranges the risk

Securitization re-arranges all the risks in the structure. Therefore, each tranche has different ratings and may have different types and levels of risk, which are priced accordingly. However, investors do have a choice about what risk and return profile best fits their investment principles consistent with their own economic views.

Summary
We provide a birds eye overview of the developing securitization market in Asia. While it is well developed in some regions, such as South Korea, the development of the overall securitization market in Asia is slow and behind the global market. A majority of the Asia securitization market is in local currency. Comparing the ratio of securitization market-to-GDP in Asia to other developed regions, we believe that there is great potential in the region. However, key prerequisites are needed before the securitization market can take off in Asia. These include a well-developed legal system, complete regulatory framework and more-advanced capital market. A summary of the asset securitization process is provided for reference, with basic discussion on the structure and risk factors.

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Appendix: Glossary
Asset. An asset is anything owned that can produce a future economic benefit, whether in possession or by right to take possession. An asset is listed on the balance sheet. It has a normal balance of debit. Asset-backed securities (ABS). Bonds that are backed by a pool of financial assets that cannot easily be traded in their existing form. By pooling together a large portfolio of these illiquid assets, they can be converted into instruments that may be offered and sold more freely in the capital markets. Asset Based Lending (ABL). In the simplest meaning, asset based lending refers to any kind of lending secured by an asset. This means, if the loan is not paid, the asset is taken. Asset Based Loan (ABL). Asset based loans will typically be loaned to a borrower and secured by either residential or commercial real estate, or both if they are cross collateralized, at a fixed percentage of the properties appraised value. Collateralized Debt Obligation (CDO). This is a structured finance product that typically securitizes a diversified pool of debt assets. These assets, corporate loans for instance, are split into different classes of bonds (known as tranches) that pay investors from the cash flows they generate. Collateralized Loan Obligation (CLO). This is a repackaging of leveraged loans by an asset manager who buys the loans in the primary or secondary markets. Collateralized Mortgage Obligation (CMO). A more complex MBS in which the mortgages are ordered into tranches by some quality (such as repayment time), with each tranche sold as a separate security. Credit Enhancement. Two general types of enhancement structures: external and internal. External credit enhancement comes in the form of third-party guarantees that provide for protection against losses up to a specified level. Internal credit enhancement comes in more complicated forms, and the most common forms include: reserve funds, over-collateralization, and senior/subordinated structures. Credit Rating. A credit rating measures credit worthiness, the ability to pay back a loan, and affects the interest rate applied to loans. Guarantee. A guarantee is a person or company who agrees to be responsible for the debt or obligation of another. Leveraged Loan. According to the Loan Pricing Corporation, any loan that is priced at L+125bp or greater is referred to as leveraged loan. Mortgage-Backed Security (MBS). A mortgage-backed security (MBS) is similar to a bond whose cash flows are backed by mortgage payments. In the United States, residential mortgage loans may usually be prepaid in whole or in part at any time. Pass-Through Mortgage-Backed Security. The simplest type of MBS. Essentially, it is a securitization of the mortgage payments to the mortgage originators. Residential Mortgage-Backed Security (RMBS) - A pass-through MBS backed by mortgages on residential property.

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Commercial Mortgage-Backed Security (CMBS) - A pass-through MBS backed by mortgages on commercial property.

Pooling. Pooling is the grouping together of assets. Debt instruments with similar characteristics, such as mortgages, can be pooled into a new security, for example: Asset-backed securities (ABS), mortgage-backed securities (MBS), collateralized debt obligations (CDO), and collateralized mortgage obligations (CMO). Securitization. A financial technique that pools assets together and, in effect, turns them into a tradeable security held by a bankruptcy remote special purpose vehicle (SPV). Essentially, securitization is the transformation of illiquid assets into a security. Security. A type of transferable interest representing financial value. Traditionally, securities have been categorized into debt and equity securities, and between bearer and registered securities. Special Purpose Entity (SPE), Special Purpose Vehicle (SPV). A special purpose entity (SPE) (formerly "special purpose vehicle") is a firm created by a company to fulfil narrow or temporary objectives, primarily to isolate financial risk. A special purpose entity is typically almost entirely owned by the parent company, but in certain jurisdictions is required that at least 3% be owned by another investor. Stripped Mortgage-Backed Securities (SMBS). Each mortgage payment is partly used to pay down the loan's principal and partly used to pay the interest on it. These two components can be separated to create SMBS, of which there are two subtypes: Interest-Only Stripped Mortgage-Backed Securities (IO) - A bond with cash flows backed by the interest component of a property owner's mortgage payments. Principal-Only Stripped Mortgage-Backed Securities (PO) - A bond with cash flows backed by the principal repayment component of a property owner's mortgage payments.

Structured Finance. Refers to any "non-standard" way of raising money. These tailor-made securities go beyond "standard" securities like conventional loans, debentures, debt and equity. The reason to structure a more advanced security may be that conventional securities may be unattractive, unavailable or too expensive. Tranche. This is French for slice. In structured finance, the word tranche refers to one of several related securitized bonds offered as part of the same deal. They are called tranches since each bond is a slice of the deal's risk. The legal documents (see indenture) usually refer to the tranches as "classes" of notes identified by letter (e.g. the Class A, Class B, Class C securities). Trustee. The word trustee is a legal term that refers to a holder of property on behalf of some other beneficiary. Waterfall. The waterfall defines the order of cash distributions to the various stakeholders of the trust. It sets the priority of each stakeholder in receiving funds generated by the assets at any time and under any circumstance.

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Disclosure Appendix A1
ANALYST CERTIFICATION I, Shuguang Mao, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views in this report.

Other Disclosures
ADDITIONAL INFORMATION AVAILABLE UPON REQUEST Citigroup Global Markets Inc, including its parent, subsidiaries and/or affiliates (CGMI), may make a market in the securities discussed in this report and may sell to or buy from customers, as principal, securities recommended in this report. CGMI may have a position in securities or options of any issuer recommended in this report. An employee of CGMI may be a director of an issuer recommended in this report. CGMI may perform or solicit investment banking or other services from any issuer recommended in this report. Within the past three years, CGMI may have acted as manager or co-manager of a public offering of the securities of any issuer recommended in this report. Securities recommended, offered, or sold by CGMI : (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Investing in non-U.S. securities entails, including ADRs, certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of, the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed accurate, but investors are urged to consult their tax advisor for exact dividend computations. Although information has been obtained from and is based upon sources CGMI believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute CGMI 's judgement as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Investing in non-US securities by US persons may entail certain risks. 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