AEON Thana Sinsap, the Thai subsidiary of Japan's AEON Credit Service Co., has begun marketing a THB2billion ($52 million) credit card receivables securitization via Citigroup Global Markets as lead manager. Both parties spent last week conducting one-on-one sessions with local investors before holding a roadshow in Bangkok on Friday.
Although ABS transactions have been a rarity in Thailand since the 1997 Asian financial crisis, this will be AEON's second offering following a THB1.5 billion hire purchase receivables deal via Standard Chartered last February. The six-year debentures offered an annual coupon of 4%.
AEON's latest offering - issued from the Eternal Credit Card SPV - will be drawn from a portfolio with a book value of THB3 billion. Company officials say proceeds will be used to boost its loan portfolio, currently worth around THB18 billion.
The deal is split into two THB1 billion tranches, both rated triple-A by Fitch Ratings. The A1 debentures have an expected maturity of three years and legal final of 4.75-years while the A2 paper has a five-year expected life and 6.75-year final. Credit enhancement of 29% comes primarilly through overcollateralization.
One source reported that discussions have been held with a broad base of domestic and foreign accounts including banks, insurance companies, pension funds and mutual funds. The source declined to comment on likely pricing - although there has been some speculation it will be in the region of 100 basis points over government paper. As for a closing date, the source said it would depends on how much time investors need to become comfortable with the structure.
With investor appetite for structured products increasing, the 2005 outlook for the Thai ABS market seems promising. "I feel positive about the Thai market for a few reasons," agrees Kristine Baden, vice president of global securitization markets covering Asia-Pacific at Citigroup. "Firstly, in terms of consumer assets like auto loans, hire purchase receivables, mortgages and credit cards, market penetration is still relatively low compared to countries such as Hong Kong and Korea, so there is room for growth." For example, it is estimated only 12% of the Thai population holds a credit card.
"Secondly, one of the requirements of the Financial Services Restructuring Master Plan is that credit companies can no longer take deposits," continued Baden. "Consequently, these companies are going to need alternative sources of funding, and securitization is one way they can fund themselves. Plus, there are still Thai companies seeking off-balance-sheet solutions, so there may also be the odd esoteric transaction on top of the consumer finance deals."
Thailand operates under a civil law jurisdiction, which influences securitization to the extent that market operation is dependent on a specific ABS law rather than legal precedent. ABS bankers believe the current law would benefit from a few amendments to facilitate growth; while clarification is also sought on whether Thailand will adopt international accounting standards. The process of change is a gradual one.
"As with any new market, there are a few issues that need clarification, such as accounting standards and whether future receivables can be securitized under the present legislation," Baden added. "A trust law would be a useful addition, particularly for evolving assets. However, little by little, these issues are being resolved, so generally I believe the only way the market can go is up."
Moving over to Taiwan, one of the country's biggest credit card companies, Anshin Card Services, closed its debut ABS last week. Citigroup acted as arranger on the NT$3.76 billion (US$118.1 million) transaction, issued out of the Anshin Credit Card Special Purpose Master Trust.
The deal featured two four-year fixed-rate bullet tranches. The NT$3.68 billion ($116 million) senior certificates, rated Aaa.tw' by Moody's Investor's Service, offer a 2.50% annual coupon - an approximately 40 basis point premium to the four-year swap rate. In addition, NT$80 million of subordinated certificates, rated Baa3.tw', offer 3% per annum, 90 basis points over swaps.
A banker involved in the transaction said 13 investors participated, primarily banks, insurance companies and government agencies. The banker also anticipated some secondary trading - not commonplace among Asian ABS buyers - due to high preliminary demand.
Anshin - a subsidiary of Bank Sinopac - is expected to launch future deals out of its master trust in 2005, depending on funding needs. With other banks holding large credit card portfolios, some experts predict it will be the dominant asset class this year.
Following the mid-2004 decision to allow Taiwanese insurance companies to purchase structured products, synthetic arbitrage CDOs have become increasingly popular. Sadly, it is difficult to gauge how voluminous the CDO market is, because those involved in deals usually choose not to disclose such information.
One entity bucking the trend is Shin Kong Life, which recently closed a $2 billion synthetic CDO via Deutsche Bank Securities. Around 80% of the transaction - issued through the London-registered SKL CDO Series SPV - is collateralized by CDOs (featuring some 250 corporate names), with the remaining 20% backed by regular ABS paper.
Shin Kong, which currently holds NT$89 billion of assets, will manage the deal as well as being one of the principal investors. Although pricing details were not disclosed, it is believed CDOs of CDOs can offer a spread pick-up of around 100 basis points over a plain vanilla-CDO.
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