First financial product converting IP to capital value


China’s first asset-backed securities with the financial leases of intellectual property were recently approved for listing on the Shenzhen Stock Exchange. “It’s debatable in the market whether the IP asset can be financed by way of sale and lease back,” Eddie Hu, a partner at King & Wood Mallesons (KWM) told China Business Law Journal. “The legality and validity of an underlying finance leasing transaction definitely affects the feasibility of a securitization project.”


First Capital-CUL&TECHFLCO Asset-backed Specific Plan Phase I (CUL&TECHFLCO ABS Phase I) was secured by pools of the underlying assets of the originator, Beijing Culture & Technology Financial Leasing (CUL&TECHFLCO), including 51 industrial property rights and copyrights in multiple sub-sectors as the objects of financial leases.

The KWM team advised CUL&TECHFLCO with all aspects of work in the issuance, led by partner Eddie Hu and senior associate Chen Fushen. KWM’s partner Cecilia Lou and her IP team gave support in several important technical aspects of intellectual property.

“By way of sale and lease back, the IP asset value converts to a series of contractual cash flow payment installments, i.e., the underlying lessees have the obligation to pay according to an agreed repayment schedule. On that basis, the originator sells the receivables to a special purpose vehicle to issue the notes and get the financing,” says Wu.

In the project, intellectual property was deemed equal to physical assets in terms of value, which can significantly speed up the realization of intellectual property’s capital value, according to KWM. The model has also explored an efficient and cost-effective channel for the innovative direct flow of capital from the virtual economy to the real economy.