Malaysia's government-controlled secondary mortgage company, Cagamas, has launched what will be the country's first RMBS and its largest securitization to date. Local firms Aseambankers, Commerce International Merchant Bankers plus international house Standard Chartered are joint leads on the M$1.8 billion ($473 million) transaction.

The deal is set to price on Oct. 13, with closing tentatively scheduled for Oct. 20. Aseam and CIMB are handling the domestic placement, with StanChart in charge of international distribution. This makes it the first ringgit-denominated debt deal offered to foreign buyers, and to that end, StanChart and Cagamas officials will hold roadshows in Singapore and Hong Kong this week.

Cagamas' involvement, if its deals are priced sensibly, will surely benefit the Malaysian market. Officials at the agency said it wants to raise as much as M$20 billion ($24.8 million) from MBS issuance in the next three years.

Its first fixed-rate offering, already rated AAA by the Malaysian Rating Corp. and Rating Agency Malaysia, will be split into M$678 million ($178 million) of three-year bonds, M$408 million ($107 million) of five-year notes, M$330 million ($86 million) seven-year paper and a M$384 million ($101 million) 10-year tranche.

The M$1.9 billion underlying pool includes over 68,000 mortgage loans to retired government workers. The bonds will be redeemed by monthly deductions taken automatically from pensions of the retirees, minimizing exposure to the creditworthiness of individual borrowers. The loans are also covered by government insurance policies.

With historical data showing only 0.05% defaults, rating agency analysts regard this as effectively a zero-risk deal.

It is difficult to ascertain how much appetite there will be from outside Malaysia, especially since it is a local currency issue. A banker involved with the deal admitted as much, but said that since this is a pilot offering, the government "does not have high expectations." Nevertheless, one incentive for foreign investors will be exemption from withholding tax, the banker added.

There is no doubt the deal will attract plenty of interest from Malaysian buyers. Although Cagamas is making its securitization debut, the agency is Malaysia's most prolific unsecured debt issuer and, as a government body, is considered an extremely low risk investment.

It is believed the government wants Cagamas to move towards MBS deals; primarily it seems to promote and establish a benchmark for other securitization issuers. The market has not developed as quickly as many hoped after the Securities Commission introduced ABS guidelines in 2001.

Once completed, the transaction will comfortably exceed the previous record mark of M$1 billion ($263 million) for a Malaysian securitization, shared by the primary CLOs of Alliance Merchant Bank in May 2004 (see ASR, 5/31/04) and Affin Bank in November 2002. Nomura Securities advised on both issues.

Elsewhere in Asia

Singapore is on course for a record year of issuance, yet that has not stopped the government from trying to improve market conditions. In October, the Inland Revenue will implement a budget requirement to make special purpose vehicles tax neutral.

The policy will apply to all securitization SPVs established since the budget was announced in May. The government says it hopes the move addresses and mitigates tax disadvantages caused by the timing mismatch between receiving income and paying expenses.

The concessionary treatment only applies to securitization issuers and advisors with operations in Singapore, according to bankers. This would benefit houses such as ABN AMRO, Deutsche Bank Securities, Hypo-Vereinsbank and UBS.

Bankers involved said the move would aid rather than transform the market, with one pointing to how it was an alternative to the current REG S deals, which focus on Asian distribution rather than domestic placement.

Another added that tax neutrality was a factor in the growth of Singaporean real estate investment trust securitization over the past three years, and hoped for the same effect in other asset classes.

Law changes are also likely in South Korea, with the government planning amendments to the 1998 ABS Act. The Act governs almost the entire domestic market, as the MBS Act is only applicable to the Korea Housing Finance Corp.

Sources in Seoul say the government wants to enforce the proposed changes by the end of this year, in order to encourage a wider spectrum of issuers. Although Korea still accounts for 82% of the total issuance in non-Japan Asia, and 60% of cross-border volumes according to Standard & Poor's, domestic activity has fallen sharply in recent years.

Bankers familiar with the draft of the revised act says it includes, among other things, details on broadening the type of companies that can securitize, easing the true sale process, lowering the minimum capital requirement for establishing special purpose companies, clarifying accounting treatment and allowing the securitization of equity tranches.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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