Citibank has been mandated to arrange the second securitization by the Thai subsidiary of Aeon Credit Service Co., Asian ABS bankers said. Aeon Thana Sinsap made its ABS debut in February with a THB1.5 billion (US$36.8 million) hire-purchase receivables deal arranged by Standard Chartered.

The next deal will be backed by credit cards, if market chatter is to be believed. Although Citibank would not comment on the speculation, rival bankers said it was not surprising that the bank had been picked. Citibank has a long-standing relationship with Aeon, having arranged several transactions in Japan - the company's home market - and a HK$69 million (US$88.5 million) credit card deal in October 1999 for Aeon's Hong Kong spin-off.

The more scurrilous rumors on the choice of Citibank suggest Aeon was not happy with the execution of its first Thai deal. The six-year transaction, rated triple-A by Fitch Ratings, had a 3.5-year revolving period and was the first consumer finance transaction completed by a private-sector company under Thailand's securitization law. Criticism centred on distribution of the bonds; although, in mitigation, such talk is hardly uncommon, and Thai investors are still familiarizing themselves with ABS products.

Using securitization as a means to raise funds for small and medium-sized enterprises (SMEs) seems to be flavor of the month in Asia. After ASR reported last week on two such initiatives in Singapore, it now seems that the Philippines wants to get in on the act.

Talk from Manila suggests the state-controlled Development Bank of the Philippines (DBP) is in the process of setting up an electronic market for the sale of receivables generated by SMEs. The facility, called Market for SME Receivable Purchases (M4SME-RP), allows retail and institutional investors to select the different SMEs it wants exposure to, and then DBP packages receivables generated by them into tailor-made securitization deals

M4SME-RP also operates as a clearinghouse, where commercial documents are authenticated and exchanged.

If successful, it will be a tremendously encouraging development for the Philippine securitization market. After years in the making, Philippine legislators finally passed a Securitization Act in July 2003. However, the list of failed efforts to complete ABS deals in the Philippines is long. It would be wise to hold off on heralding DBP's effort as a new dawn until regulatory approval has been secured and, more importantly, investors show genuine interest.

Staying on the SME theme, more information has emerged on the Korean CBO that Nomura Securities is working on - with local firm Hannuri Securities in support. The transaction is understood to be at least 10 billion (US$92.7 million) - but potentially much larger - and has the backing of the Korean Ministry of Finance and Economy, with launch expected in September.

As reported previously in ASR, the Japan Bank for International Cooperation will guarantee the notes, to encourage the participation of Japanese investors. In addition, the Small Business Corporation of Korea will purchase the subordinated tranche as the first level of credit enhancement.

Although it might appear strange that an essentially Korean deal is denominated in yen, it is not unique. Nomura arranged the first such transaction for Korea Air Lines (KAL) in September 2003, a 27 billion issue backed by future revenues on KAL's Korea-Japan routes.

Aside from the currency factor, the transaction, guaranteed by Korea Development Bank, was groundbreaking for several reasons: the first future flow deal completed in Japan, the biggest air ticket receivables transaction and the first backed by revenues from the International Air Transport Association's billing and payment unit.

KAL's deal, rated A-' by Standard & Poor's and A' by Fitch, featured three-year amortizing notes with average lives of 1.6 years and offered a pickup of 110 basis points over Libor.

Also in SME news last week, plans surfaced of an issuance program from Japan Finance Corporation for Small Businesses (JASME). Apparently, JASME will issue 150 billion in CDOs in 2004. Under the first part of the program, JASME will purchase unsecured SME loans from different originators for the purpose of securitization. In order to share the risk, JASME and the originating banks will both hold a portion of the first-loss equity tranche on completed transactions.

As a second initiative, JASME will also provide a guarantee to cover 70% of the value of loans to be securitized separately by private financial institutions. According to reports in Japan, six regional banks have committed themselves to the scheme, although there are no details yet on which bank will arrange the first deal or when that is likely to be launched.

Also in Japan, the Financial Services Agency (FSA) - the chief regulator of the financial system - has proposed a list of measures designed to sharpen the regulatory teeth of the Securities and Exchange Surveillance Commission (SESC).

Currently, the SESC's primary focus is the activities of securities houses. Should the revisions to the Securities and Exchanges Law be approved - which could take up to a year - the SESC will have the power to inspect special-purpose companies and trusts. With the increasing amount of complex securitization transactions launched into the market, the FSA wants to give SESC more power to protect investors.

That is good news. However, in a disappointing development, changes to the Trust Business Law, which were due for discussion by Japan's national legislature (DIET), have been postponed.

FSA wants the law revised to allow non-financial companies to enter the trust business and to allow new asset classes to be sold to trusts, including intellectual property rights.

However, with issues related to Japan's pension system taking top priority, the amended Trust Business Law bill will have to be resubmitted to the DIET later this year.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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