Thai consumer finance company AEON Thana Sinsap, a subsidiary of Japan's AEON Credit Service, is plotting a third raid on the ABS market at the end of this month. Citigroup Global Markets will arrange the THB2.3 billion ($57.4 million) credit card deal, reprising the role the bank filled for AEON's THB2 billion securitization of the same assets in February 2005 (ASR, 2/21/05).
Roadshows will shortly take place in Bangkok for the latest four-tranche offering, with pricing due around the Jan 27. AEON officials said proceeds will be used for working capital requirements and new loan origination.
The transaction, issued out the Eternal 3 SPV, is backed by a THB2.8 billion pool of revolving loans. Fitch Ratings has assigned local ratings of triple-A to two senior fixed rate tranches: a THB1.5 billion three-year piece and THB500 million of five-year notes. Credit support will come chiefly through two subordinated five-year pieces: THB120 million of AA-rated paper and THB160 million single-A rated tranche. Additional enhancement comes from a small cash reserve.
With Thai consumer finance companies no longer able to take deposits, securitization should constitute a core part of their funding strategy going forward. One of AEON's domestic competitors, Siam Panich Leasing, will issue a THB5 billion auto loans ABS in the first quarter, with Standard Chartered the appointed arranger.
Aeon's last offering featured three-year and five-year senior notes, which respectively paid 70 and 85 basis point spreads over government bonds with similar maturities.
Meanwhile, in the People's Republic of China, Huaneng Power International could be the latest high-profile entity to test the securitization waters. The company has called an extraordinary shareholder's meeting on Jan. 18 to gain approval for a RMB15 billion ($1.86 billion) ABS program and RMB5 billion offering of short-term debentures.
If shareholders give the green light, Huaneng will send out requests for proposals to prospective arrangers with a view to issuing the first in a series of ABS transactions towards the end of 2006.
Huaneng, listed in New York, Hong Kong and Shanghai, is one of China's largest independent power companies with a market capitalization of $8.4 billion. Its current total plant capacity is 22,253 MW - mostly coal-fired - but Huaneng wants to boost this through acquisitions and building new plants.
The company views securitization as an alternative to bank loans for funding capital expenditure. The success of China's first corporate ABS - a RMB3.2 billion short-term deal by China United Telecommunications in September (ASR, 9/12/05) - laid a template that several other major companies are likely to follow in 2006.
Unicom's transaction comprised six-month paper paying 2.55% and one-year notes offering 2.8%. While that equated to an 80-point pickup over bank-issued commercial paper, it was significantly under the 5% one-year loan rate charged by commercial banks. Consequently, it came as no surprise when Unicom announced plans for a follow-up deal, expected in the first quarter. ABS bankers also anticipate small regional banks to use securitization extensively as a means to fund loan origination.
Elsewhere in China, the Shenzhen City Government will target securitization issuers as part of a wider strategy to position the city as an industrial finance center. Government officials for the city - located in the southern province of Guangdong - say they will introduce a series of reforms designed to facilitate ABS issuance on the Shenzhen Stock Exchange. Toll road operator Dongguan Development Holdings listed the first securitization deal on the city's exchange in the last week of 2005 (ASR, 1/9/06).
Elsewhere, Japan is on course for another bumper year with issuance of 7.5 trillion ($65.4 billion) forecast by Merrill Lynch's ABS research team. That would be a slight drop on 2005's total of 7.7 trillion for transactions where details were made public. It should, however, be remembered that last year was comfortably the best on record, with a 54% leap from 2005's figure of 5 trillion.
Merrill largely based its prediction for the coming year on the assumption RMBS will stay bright. In 2005, it accounted for almost 4 trillion, with private bank issuers and the Government Housing Lending Corp. to the fore.
While growth in traditional asset classes may level off this year, Merrill believes that equipment lease-backed issuance might edge up, while spread widening should help boost arbitrage CDO activity.
Meanwhile, Bank of Tokyo-Mitsubishi UFJ - now reckoned to be the biggest bank in the world following the recent merger of BOTM and UFJ Bank - is to extend the securitization program established in 2005 by UFJ for small and medium sized enterprises.
The bank lent 200 billion to SMEs struggling to access bank loans at favorable terms in exchange for ownership rights to their accounts receivables, which UFJ then securitized. With BOTM on board, the program will add a further 500 billion over the next two years.
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