With many bankers on summer vacation, activity from Asia has seemingly gone on holiday with them in recent weeks. Despite the lull, the region is still on course for its best year since the Korean consumer finance boom sparked a wave of issuance in 2001 and early 2002.
Although the recent re-emergence of the Thai and Indonesian markets has been an unexpected bonus, the real strength of Asian ABS is gauged by how Japan and Korea are faring. Both countries are on course for stellar years.
First half issuance in Korea's domestic market was up 26.4% to W14.3 trillion ($13.9 billion) from W11.3 trillion in 2004, according to the Financial Supervisory Service. This suggests Korean securitization is back on track after annual volumes fell from a record W40 trillion in 2003 to W27 billion last year. June alone posted W4.11 trillion in deals.
The FSS attributes the growth to a surge in issuance from property developers, which are using securitization to finance new building construction. In addition, there has been increased appetite from investors for ABS. With interest rates still relatively low, investors have also shown greater willingness to move further down the credit curve, with more triple-B paper being issued than ever before. A third factor has been the increase in MBS volumes, due largely to the W2.2 trillion issued by secondary mortgage company, Korea Housing Finance Corp.
Also in Korea, Citigroup Global Markets has been linked with a bid for Incheon Oil Refinery. The company is a subsidiary of Incheon Oil, which went bankrupt in 2001 and was placed under court receivership in 2003.
Citigroup is already the main creditor of Incheon Oil with a 25.7% stake, as well as holding 30% of unsecured debt in Incheon Oil Refinery through its Blue Two Asset Securitization Specialty SPV and Korean securities division.
According to local media, Citigroup has rejected a bid of W681 billion by Chinese chemical trading company Sinochem, while Korean firms SK Corp and STX have also been linked to Incheon.
With oil prices at record highs, it is believed the bank and other creditors are looking for an offer closer to W780 trillion. If no acceptable bids are forthcoming, the rumour mill says Citigroup will look to buy the company itself, a move that would be partly funded by securitization. Speculation in some quarters suggests a joint bid with Sinochem may also be considered.
Meanwhile, in Japan, local rating agencies noted issuance of 624.7 billion ($5.6 billion) in the second quarter for 47 rated transactions, a 20.3% increase from last year. This figure does not take into the account the numerous private unrated transactions that have recently dominated the market and which make estimating total volumes a near impossibility.
Japan's second quarter issuance growth is down to one asset class, MBS, which accounted for 301.2 trillion of the total. That was a 340% increase on the same period in 2004, while agencies observed falling volumes in the ABS, CDO and CMBS sectors.
In Malaysia, Rimbunan Hijau, a conglomerate with interests in logging, plantations and shipping, recently closed what is believed to have been the world's first securitization of oil palm plantation assets. The M$143 million Islamic ABS was arranged by Overseas Chinese Banking Corp. and issued through the Midas Plantation SPV.
Under the terms of the deal, two Rimbunan subsidiaries transferred ownership of two oil palm plantations and a mill to the SPV. They will now lease back the assets for the term of the deal and have a buyback option at maturity.
The transaction comprised M$93 million of Sukuk Al Ijarah - leasing notes - and M$50 million of ABCP. The sukuk component was split into eight tranches, with ratings ranging from AAA' to A3' by Rating Agency Malaysia, and maturities stretching from 4.5 years to 9.5 years.
Sources suggest coupons for triple-A paper ranged from 5.4% for 4.5 years to 5.8% for 8.5 years, offering a significant pickup over relevant government bond benchmarks. Currently, five-year Malaysian government securities are paying 3.40%, while 10-year yields hover around 4.15%.
Two other conglomerates, Multi-Vest Resources and Boustead Holdings, are also looking to securitize plantation assets but are still awaiting regulatory approval (see ASR 3/28/05).
Elsewhere, price guidance has emerged on Hong Kong's first CMBS deal in almost five years (see ASR 7/11/05). Singapore-listed Fortune Real Estate Investment Trust recently launched a HK$2.385 billion ($306.8 million) deal secured over 11 properties via the Triumph Assets SPV, with HSBC Securities as arranger.
A source reported guidance for the HK$1.735 billion triple-A notes is in the 25 basis point area over Hibor, 45 basis points over for the HK$360 million double-A rated notes and 55 over for the HK$290 million single-A rated tranche. The source added that spreads would be "in-line with where CMBS is pricing in European markets today."
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