China’s Securitization of Intellectual Property Takes a New Step Forward
Overview:
- Compared with the traditional process of securitization, the underlying assets no longer have to be tangible assets, they can also be intangible intellectual property. The Chinese government has demonstrated serious interest in this area.
- With the active promotion from the State Intellectual Property Office, the construction of China’s intellectual property rights system has continued to accelerate, and the intellectual property financing and insurance businesses have developed steadily.
- Since 2008, intellectual property protection has risen to a the attention of the national Chinese government. Intellectual property financing is becoming an important means of financing for SMEs, and intellectual property financing leasing potential is growing.
The securitization of intellectual property refers to the issuance of market-traded securities, valued based on the expected future earnings of that intellectual property. Compared to the traditional process of securitization, the underlying assets are not tangible assets, but intangible intellectual property. The Chinese government is taking this process very seriously. Since 2017, the State Council has issued the “National Technology Transfer System Construction Plan” and proposed to pilot Intellectual Property Rights (IPR) securitization financing.
With the active promotion from the State Intellectual Property Office in recent years, the construction of China’s intellectual property rights system has continued to accelerate. The intellectual property asset-backed securities (ABS) and insurance businesses have developed steadily as a result.
What’s Being Securitized This Time?
The name of the IP ABS issued this time will be “The First Phase of the Liberal Arts ABS” (文科一期ABS). The underlying assets for this security are all intellectual property rights such as invention patents, utility model patents, copyrights, as well as other such property rights.
The underlying assets of the first phase of IP ABS are the “intellectual property financing lease” for businesses with patents and copyrights. There are in total 51 intellectual property rights, such as patents and copyrights, covering a number of sub-sectors in the fields of cultural and creative fields such as art performance, film and television production and distribution, information technology, and digital publishing.
The future operating cash flows of these intellectual property rights will be used to price its underlying assets. This not only meets the requirements of asset securitization for these assets, but also meets the need of the intellectual property rights owners. It has the unique advantages of diversified assets, mature risk control system, and high credit rating of issuing entities.
The Issuer — Cultural Technology Leasing
According to the release article, the main body of the issuance, the Cultural Technology Leasing(文化科技租赁), was established in 2014. It is a subsidiary of Beiwentou Investment Co., Ltd. (北文投), which provides comprehensive financing services such as financial leasing for enterprises.
In September 2015, the Cultural Technology Leasing pioneered and started the “IP financing lease” process in the country in order to solve the problems enterprises were facing. In the past, it was hard for enterprises to obtain bank financing through traditional means, such as real estate mortgages, since the properties are often light assets and smaller in scale. The IP financing lease fully revitalizes the intellectual property rights of enterprises and opens up a brand new intellectual property opportunity in addition to the banks’ Intangible Asset Mortgage.
Over the past three years, Cultural Technology Leasing has provided more than 8 billion Yuan of financing support to more than 400 cultural and technological enterprises through intellectual property financing leasing. This business accounted for nearly 40% of the company’s investment, much higher than the current commercial banks. However, these loans account for less than 0.1% of those issued by banks, of which Small and Medium Enterprise (SME) projects account for more than 75%, and private enterprises account for 92%.
Implement an Effective Assessment of Intellectual Property Values and Strict Risk Control
To deal with the problem of value assessment and risk control in IP securitization, Cultural Technology Leasing has established an expert team of 120 people to explore a relatively mature IPR assessment method and risk control system in years of business practice. The intellectual property rights of ABS have undergone strict risk review. The value of each right has been professionally evaluated and strictly demonstrated by independent third-party asset appraisal agencies.
The Promiser of the Differential Payment: State-Owned Sole Proprietorship Company: Beiwentou
The first phase of the liberal arts ABS had Beiwentou as the promiser. Beiwentou is a state-owned sole proprietorship company in Beijing. It is an important investment and financing platform for the development of IP ABS. It has now formed six major businesses of finance, with a total value of more than 44 billion yuan in assets, which are the first investment enterprises in the country to receive the AAA credit rating.
The Future:
Since 2008, intellectual property protection has risen to a national level. With the continuous strengthening of China’s intellectual property protection and the gradual improvement of the intellectual property operation system, various types of intellectual property rights have developed rapidly, showing an increasing trend year-by-year.
Taking patent rights as an example, as of October 2018, China’s 2018 patent applications has led to more than 3.51 million listings, and the number of valid patent applications has exceeded 11.5 million. The demand for intellectual property conversion of small and medium-sized enterprises has been increasing as well. Intellectual property financing is becoming an important financing means for SMEs, and intellectual property financing leasing potential is quite large.
8 Decimal Capital: Shape the Blockchain Future
Medium | LinkedIn | Twitter | Facebook | Website
Email: contact@8dcapital.com if you have any more questions about this topic.
8 DECIMAL CAPITAL is a multi-strategy investment firm focusing on token and equity investments. 8 Decimal currently has more than 40 portfolio companies with an AUM of 60M USD. The investment team consists of more than 10 venture capital veterans, researchers, and trading professionals. The advisory board comprises Fan Zhang (Former Founding Partner of Sequoia Capital China), Karen Chen (Former CEO of UBS China) and Ben Bartlett (Vice Mayor of Berkeley). Based on the professional fund index ranking agency
, 8 Decimal was ranked second out of the 51 active crypto funds. 8 Decimal is also well-received in China, named one of the top 10 funds in the blockchain industry by both , , and , as well as named one of the top 20 funds by Tsinghua X-Lab and Youth Education Chain League.
