China Development Bank (CDB) is in talks with Australia's Macquarie Bank over a securitization of infrastructure loans, according to media reports. CDB's governor Chen Yuan was quoted as saying Macquarie was a logical choice of partner given its experience with infrastructure financing and the international markets.
CDB, along with China Construction Bank, kick-started China's securitization market at the back of last year with the completion of the official recognized pilot schemes (ASR, 1/9/06). The bank has so far issued RMB10 billion ($1.3 billion) on the domestic Interbank market from its CLO program.
Its status as one of China's state-controlled policy banks should put CDB in a good position when negotiating China's lengthy regulatory procedures. Nonetheless, it is unclear at this stage whether an offshore deal would require additional approvals.
Macquarie's recent experience securitizing Chinese-domiciled assets in the international market may explain its involvement. In October, Macquarie Wanda Real Estate Fund - a joint venture between Macquarie and local property developer Dalian Wanda - completed a $145 million CMBS secured over nine retail properties located in Eastern China (ASR, 10/23/06).
The $2.75-year deal - arranged by Citigroup Global Markets and Macquarie and called Dynasty Assets - was rated A2'/'A-' by Moody's Investors Service and Standard & Poor's and priced at 80 basis points over Libor.
According to sources, Macquarie is due to add resources to its Asian origination effort. Market whispers suggest the bank has lined up Sarwar Ahmad to fulfill the role of head of Asian securitization from January 2007. Ahmad was up until November 2005 head of HSBC's structured finance group.
Citigroup Global Markets has completed its first securitization of trade receivables. Issued via the ABS Global Finance SPV, the $198.9 million Reg S offering was backed by a pool of trade finance loans originated by Citigroup branches in Hong Kong, Singapore and Taiwan (ASR, 11/20/06).
Citigroup arranged the deal. According to bank sources, it is likely to be repeated with subsequent offerings including assets originated in Asia, Europe, Latin America and the Middle East.
The transaction comprises five rated tranches with expected maturities of two years and legal finals of four years. The A$186 million senior notes - rated triple-A by Fitch Ratings and S&P - priced at 10 basis points over one month Libor. Additionally, the $7 million single-A notes and $3 million of triple-B bonds respectively offered pick-ups of 50 and 100 basis points.
Spreads were not disclosed on the double-B, single-B tranches and unrated equity piece retained by Citigroup. According to the bank, investors from Asia and the US subscribed to the deal.
"This innovative transaction was well received by investors due to its unique profile of high quality assets and risk diversification by country, industry and obligor," said John Dahl, head of the bank's Asia Pacific securitization group. "Citigroup's commitment to the development of a long term and sizable program was also a key consideration for many investors."
According to rumors, Macquarie Bank and U.S. private equity firm Texas Pacific Group plan to sell asset-backed bonds to fund their takeover bid for Qantas Airlines, Australia's biggest airline. Local media reports suggest the bidders want at least half of the money to be raised by securitization, with Qantas' 217 aircraft used as collateral. The remainder of the financing would likely go via the syndicated loans market.
In the meantime, Macquarie and Texas Pacific have invited Calyon, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley and Royal Bank of Scotland to arrange the financing for the transaction.
Qantas rejected their initial A$10.9 billion ($8.6 billion) bid last week, although analysts says this was expected in the first stage of negotiations, and expect the deal to go through early next year. Qantas is currently rated BBB+', but a well-structured securitization would enable the borrowers to gain higher credit ratings and tighter pricing. If the Macquarie/Texas Pacific bid is successful, it would mark the first occasion that ABS was used to fund the takeover of an airline in the Pacific Rim.
Staying Down Under, Citigroup last week completed a self-arranged A$922 million ($720 million) RMBS through the Securitised Australian Mortgage Trust facility. The deal, upsized from A$721 million, is backed by a pool of prime mortgages and insured by Genworth. The A$895 million class-A notes - rated triple-A by Moody's and S&P - priced at 20 basis points over the Bank Bills Swap Rate for 2.65-years, while the A$27 million double-A rated subordinated notes finished 27 over for 6.62-years.
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