Australia's Macquarie Bank has confirmed that it is advising the China Construction Bank on setting up a pilot program to start mortgage-backed securitization in Shanghai.
The bank, one of Australia's leading originators of home mortgages, is now working on getting approvals for the program from China's Central Bank, the People's Bank of China (PBOC), said Tony Gill, managing director of Macquarie Securitization in Sydney.
Although Macquarie has not been mandated for a deal, the bank is working closely with government officials to create the necessary framework for the program over the medium term, he added.
Macquarie's pilot MBS program - which has the political backing of former Australian prime minister Paul Keating - received a boost from the recent launch of the AMP China Housing Program, a $50 million investment project funded with AMP Asset Management that will develop residential property throughout China.
"Establishing an MBS program naturally follows on the AMP initiative, since it's an extension of our work in bringing capital into China to assist housing finance," Gill said
Shanghai, one of China's most developed financial markets, has long been studying the merits of MBS and laying the groundwork of a domestic mortgage market. The PBOC recently mandated its Shanghai branch to carry out a feasibility study on the subject.
China Construction Bank, one of the country's big four state-owned commercial banks, is the second biggest provider of home loans in Shanghai, and has reportedly expressed interest in taking a lead role in issuing MBS.
Although most Chinese live in government-provided housing, mortgages will become more common as housing reform kicks in and the government encourages people to start buying their homes, said Gill.
"Only about 5% of people in China live in homes owned with a mortgage," he said. "There's still a lot of issues to be worked out such as affordability and low wage levels, but as interest rates fall and earnings and restructuring increase, more and more people will be able to afford their homes."
Korean Land Corp. Heads Domestic Issuance
While China attempts to kick off mortgage-backed securitzation, South Korea's domestic asset-backed market continues to grow steadily, as evidenced by several new deals in the origination pipeline.
Leading the pack is the Korea Land Corp. (Koland), a government land bank that plans on issuing two separate securitizations in the coming months. The first transaction will be backed by proceeds from real-estate sales and development projects undertaken by Korea Real Estate Trust Co., a wholly owned subsidiary of Koland. The 300 billion won (about $254 million) transaction is being arranged by domestic firm Sejong Securities and is set for launch this month. The issue will mark the first transaction attempting to securitize real estate trust assets in South Korea, a source close to the proceedings said.
Koland is also working on another receivables-backed transaction, recently mandated to Daewoo Securities with Citicorp and Nomura as structuring advisors. That deal will be backed by proceeds from the sale of real estate. The size of the transaction has yet to be determined, a Daewoo official said.
Set up in 1975, Koland is a major owner and developer of residential and industrial properties throughout Korea. Following the recession that hit that country last year, it has focused more on buying real estate from financially troubled firms and selling to foreign investors. Last summer, Koland bought 3 trillion won worth of real estate from businesses to help corporate restructuring.
Meanwhile, Samsung Securities has just started work on a second auto loan-backed transaction for Samsung Capital Service, the consumer financing arm of the Samsung group. The 300 billion won-denominated deal is set for a September launch, said a Samsung banker. Earlier this year, the seller raised 63 billion won in the country's first auto loan-backed issue.
Finally, efforts to launch the country's first residential MBS are still on track. That transaction, backed by home loans originated by nonbank financial service companies Daewoo Capital, Kumho Capital and Daehan Housing Installment Finance, was mandated to Daewoo Securities in April.
Until recently, legal complications have held up the transaction, after domestic lawyers concluded that the country's new ABS law requires the consent of each obligor before the transfer of "keun" mortgages - the most common form of housing finance in Korea - could take place.
And although an amendment to the law will be passed later this year, the arrangers have reportedly figured out a way to complete the deal in a way that does not require the transfer of the mortgages.
"It is being done in a creative way so that they don't have to wait for the amendment but it still doesn't violate the law. They would like to issue this as soon as possible," a source close to the transaction said.
Launch date for the cryptic deal, a Daewoo banker said, is set for the second half of this year.