With fears of interest rate increases affecting securitization plans across Asia, the number of completed deals has been thin on the ground compared to the same period in 2005. Even so, that has not stopped some from pressing forward in prepping transactions.

In Malaysia, the Credit Guarantee Corp. (CGU), last week inked a memorandum of understanding (MOU) with Germany's KfW Bankengruppe to help small and medium-sized entities raise capital market funding.

The MOU covers the introduction of new products by CGU such as securitization and collateralized loan obligations. As one of Europe's largest issuers, KfW's role would be to educate CGU in product innovation, having been involved in similar arrangements in Europe and Thailand.

Senior CGU officials said they hope a first ABS deal could be completed by year-end.

CGU - which is 79.3% owned by Malaysia's central bank Bank Negara - was established specifically to aid smaller companies struggling to raise capital through the bank markets, by providing guarantees on credit facilities.

If CGU and KfW decide to go down the CLO route, it will not be the first SME CLO in Malaysia. Nomura Securities has acted as technical advisor on three such deals, the most recent being a M$1 billion ($273.5 million) issue last September led by Malaysian International Merchant Bankers (ASR, 09/12/05).

However, the market environment was considerably more favorable at that time. Several deals have been held up this year, including the two synthetic CLOs being put together by Citigroup and Aseambankers as well as Deutsche Bank and OCBC.

The two consortia were selected last June by secondary mortgage company and Malaysia's benchmark MBS issuer, Cagamas, to structure deals backed by SME loans. Cagamas's role is rumored to involve paying arranging fees and purchasing the subordinated equity tranches.

According to rumors, Cagamas selected the Citigroup-Aseambankers transaction to be issued first, with the second CLO to follow at its completion.

The deal, apparently ready for launch since the first quarter (ASR, 01/23/06), was initially delayed while awaiting approval from the Securities Commission. As the first Malaysian synthetic CLO, this was understandable.

More recently, however, it is suspected that pricing issues are holding up launch, with fears of a 50 basis point rate hike coming this quarter.

"I have heard the Cagamas SME deal has already been approved, but that Cagamas does not want to launch a synthetic CLO into this market environment given the pricing would be far out from their RMBS transactions," a source said.

Citigroup would not comment on the current status of the deal.

Philippine ABS

Elsewhere, the first public securitization from the Philippines since the Asian Financial Crisis of 1997 is back on the cards. In February, the government announced plans to issue a PHP10 billion ($188.9 million) ABS program backed by tax revenues owed to local government units (LGUs) (ASR, 03/06/06).

The deal, to be issued via an onshore special purpose trust, was due in March. However, it was put on the backburner when an alleged attempted coup to oust President Gloria Macapagal-Arroyo led the government to declare a state of emergency.

Given the way political crises halted several other ABS attempts in the Philippines since 1997, bankers were skeptical the deal would get done.

However, the two arrangers on the transaction -state-owned banks Land Bank of the Philippines and Development Bank of the Philippines - said last week the transaction will launch this month, once the Treasury gives its approval.

According to the leads, LGUs have sold rights to Inland Revenue taxes withheld from them by the government in 2001, when it was mired in severe fiscal difficulties. Over the next six years, LGUs will receive payment in installments from the sale of securitized bonds, which will carry maturities stretching from one to seven years. The bonds will have an unconditional government guaranty.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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