Cagamas, Malaysia's secondary mortgage agency, began roadshows last week for the country's first Islamic mortgage-backed securitization. Accompanied by joint lead managers Commerce International Merchant Bankers and HSBC Securities plus co-managers ABN AMRO and AmMerchant Bank, Cagamas met with investors in Kuala Lumpur, Hong Kong and Singapore for a M$2.05 billion issue ($527.6 million). Pricing and closing of books are scheduled for Wednesday.
The deal, issued out of the Cagamas MBS Berhard SPV, securitizes a static pool of mortgages extended to public sector workers. Cagamas bought the portfolio, consisting of 37,334 contracts worth M$2.84 billion, from the Government Housing Loans Division, which will act as servicer.
The loans were originated between 1996 and 2000, and have a weighted average term to maturity of 23.23 months and 3.47 years of seasoning. Payments are deducted directly from monthly salaries, reducing exposure to the creditworthiness of employees. In addition, government originators are ranked senior to other creditors in Malaysia.
Cagamas MBS will issue six tranches of Sukuk Musyarakah notes. Under Islamic law, the Musyarakah concept is effectively a joint venture between two parties to finance the project, in this case the issuer and investors. Profits will be distributed at a pre-agreed ratio, with any losses shared according to the amount invested.
All six tranches are rated triple-A by Rating Agency Malaysia and Malaysian Rating Corp., with maturities of three, five, seven, 10, 12 and 15 years. The three long-dated pieces have been included to attract insurance companies, pension funds and provident funds, while 15-years stretches the yield curve for Islamic securitization. Tranche size will be finalized based on demand.
Cagamas will employ a reverse pay structure, allowing surplus cashflows to be distributed to the longest-dated tranche, assuming the cash balance exceeds M$66 million after scheduled repayments to the other five tranches have been met.
Bankers involved on the deal declined to offer details on indicative pricing levels. However, a source familiar with Malaysian ABS reported that the three-year notes are being marketed at 3.70%, five-year notes at 4.30%, seven-year notes at 4.95% and the 10-year notes at 5.50%.
If unconfirmed reports are correct, the aforementioned rates equal a 52 basis point pick-up over Malaysian government securities for the three-year piece, and 88 and 135 basis point pick-ups for the five and ten year tranches, respectively.
The nominal coupons would also match those offered on Cagamas' debut M$1.6 billion conventional MBS completed last October (see ASR 10/18/04). Interest rates have come in since last year, however, and in recent secondary market activity, those bonds traded at 3.37% for three-year paper, 4% for five year paper) and 5.07% seven year paper.
Although investors will most likely be attracted to Cagamas' quasi-sovereign status - it is 20% owned by Malaysian central bank Bank Negara - some pick-up over its debut is anticipated, due to the Islamic nature of the latest issue and the desire to attract foreign investors.
Cagamas officials told local reporters it is hoping to place between 20% and 25% of the paper offshore, a goal that if met, would repeat the success of the agency's first transaction, which saw 22% bought by foreign accounts.
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