Malaysian secondary mortgage company Cagamas completed the country's first RMBS last week. Although strong demand was anticipated for the M$1.6 billion ($421.1 million) issue, oversubscription of 5.6 times was better than anyone expected for the government agency's first foray into the market (see ASR, 10/4/04).

Boutique firm Bumiwerks Capital Management arranged the transaction, with Aseambankers and Commerce International Merchant Bankers handling the domestic placement and Standard Chartered brought in to target offshore investors.

Prior to launch, rival bankers were skeptical that foreign investors would be interested in Malaysian ringitt-denominated paper. Even bankers involved said Cagamas had low expectations for the offshore part of the deal.

The doubters were proved wrong, however, as roadshows in Hong Kong and Singapore resulted in M$2.2 billion of foreign orders. In the end, around 22% of the notes went offshore, said a banker on the deal.

When one considers the low-risk nature of the assets - mortgages to retired civil servants - and the fact it was as good as guaranteed by the Malaysian government, maybe the outside interest should not really be that surprising.

"The key was the quality of the issuer and assets," agreed the banker. "Since these are mortgage loans to civil servant pensioners and payment is deducted at source, payment risk is essentially government risk. Consequently, investors were very comfortable with the asset, structure and seller."

Unsurprisingly, domestic demand was even greater. During pre-marketing, the indicative range for the M$580 million three-year bonds was 3.7% to 3.8%, 4.3% to 4.4% for the M$340 million five-year paper, 4.95% to 5.05% for M$290 million of seven-year notes, and 5.5% to 5.65% for the M$345 million 10-year piece.

At the wide end, the order book totaled M$11.1 billion, but demand did not fall off significantly when spreads moved in, so all four tranches ended up at the tight end. Spreads over Malaysian government paper with the same maturities were 18 basis points for three years, 26bp for five, 38bp for seven and 45 basis points for 10 years.

Main interest came from financial institutions, insurance companies, asset managers and corporate investors.

With an existing loan book totaling around M$25 billion, plus between M$4 billion and M$5 billion of new mortgages originated each year, Cagamas is likely to be a regular MBS issuer next year.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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