Alliance Merchant Bank last week completed Malaysia's biggest securitization of 2004, a M$1 billion (US$263.1 million) primary collateralized loan obligation. Alliance Merchant acted as lead manager, with Nomura Securities brought on board as technical adviser - an identical role to the one it played on the M$1 billion Aegis One CLO completed by Affin Bank in November 2002.
Aside from size, the latest issue - issued through the Kerisma SPV - is identical to its predecessor in that it packages together 25 corporate loans to companies who would otherwise be unable to access the capital markets on favorable terms.
"The borrowers are able to reap the benefits of economies of scale and obtain competitive pricing for their loans, which have been structured to stimulate long-term financing, such as a bond issue," said Marcus Ong, head of debt capital markets at Alliance Merchant.
The fundamental difference between the two deals is in the pricing, as Malaysian interest rates have moved out sharply in the past six months. For example, the M$870 million of five-year triple-A bonds on the latest issue offer investors a coupon of 5.8%, while the M$30 million mezzanine piece is 100 basis points wider. The M$100 million equity return varies depending on market conditions.
Back in November 2002, Affin was able to achieve pricing of 5.2% for what was a first-of-its-kind transaction in Malaysia. However, when the recent rate hike is considered, the new transaction looks to be well executed. It still offers a generous pick-up of around 100 basis points over the average coupon on triple-A corporate bonds - as calculated by Bank Negara. When Aegis One was issued, the comparable pick-up was over 120bp.
Although this deal got done, the rate increase is expected to have a negative impact on issuance in the short-term. A well-placed source told ASR that the auto loans deal HSBC was working on for Sime Credit has been put on hold indefinitely. "It is difficult to predict exactly what will happen to rates, but the recent rise has put issuers off doing fixed-rate transactions for the time being," the source explained.
As for Nomura's immediate future, if the latest gossip is to be believed, the attention will now turn to Korea, where it is believed the bank is arranging a primary CDO for small and medium sized entities (SMEs). Rumours suggest Nomura is working with Hannuri Securities on the deal, which may be guaranteed by the Japan Bank for International Cooperation.
As the old saying goes, you wait ages for one synthetic CDO in Asia and then a bunch turn up at the same time. Following the same pattern as 2003, after Goldman Sachs/Straits Lion two weeks ago completed a deal backed by $1.5 billion of credit default swaps, others quickly followed.
First up was ABN Amro with two offerings. The first, for an unnamed Chinese client, was comprised of $50 million of AA-' bonds, rated by Standard & Poor's, which were referenced to a $1.8 billion portfolio of 100 investment grade credits. ABN followed that up with the sale of a $35 million first-loss tranche to a Singaporean asset manager. The five-year notes were linked to a $1.2 billion reference pool of European and U.S. credits, and offered a pick-up of 180 basis points over Libor.
Morgan Stanley jumped on the CDO bandwagon with its own $20 million deal, tied to a $800 million portfolio made up of 95 corporate, sovereign and financial institutions. Highlighting how investors are willing to move down the yield curve, the transaction was structured with one floating- and two fixed-rate tranches, all of which were rated A3' by Moody's Investors Service.
According to ABS bankers in Hong Kong, the fun is not likely to stop there. JPMorgan and Bank of America are both tipped to be working on offerings for Hong Kong's Bank of East Asia, while China Development Bank is also looking to get a deal away.
Over in Japan, a couple of issues are set for launch in the next week. Morgan Stanley is putting together a 25 billion trust certificate (US$224.2 million) transaction backed by bonds and loans tied to real estate. The issue will feature 17 million of floating-rate seven-year certificates, rated Aaa' by Moody's, and three subordinated tranches.
Meanwhile, Orient Corp., one of Japan's biggest consumer finance companies with assets of 4.2 trillion, will issue a 20.2 billion auto loans deal through the Oracle Iota SPV. The deal, arranged by Mizuho Securities, comprises of 14 fixed-rate tranches with a final maturity seven years. All tranches are rated Aaa' by Moody's.
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