Just like a hopeful passenger waiting for a bus, Singapore's securitization market has waited for ages for a securitization deal and then suddenly two come along at once.
In the space of a few days, the market saw the city-state's first securitization of credit and debit cards and the first collateralized debt obligation backed by local assets.
The S$65 million card deal was arranged by ABN Amro for Diners Club and is the first issuance out of a S$100 million asset-backed commercial paper program. The notes had a maturity of around 90 days.
The deal is notable as it is the first securitization of onshore receivables in Singapore and has cracked the problems that have meant that a "true" securitization market has not really got going in the city-state. The most important of these problems is that assets held in offshore SPVs are subject to withholding and other taxes.
ABN got round this by setting up a Singapore-based SPV to hold the assets in trust and then selling certificates of beneficial interest in the trust to an onshore entity of ABN's Tulip U.S. dollar asset-backed commercial paper conduit. The U.S. dollar proceeds raised via Tulip were swapped into Singapore dollars, meaning that Diners Club got local currency funding at U.S. commercial paper rates, all without incurring punitive taxes.
The fact that the structure was worked out in conjunction with the Monetary Authority of Singapore and the revenue service - during three months of negotiations - perhaps shows how keen the Singapore authorities are to encourage local institutions to issue asset-backed deals.
The deal was ultimately privately placed in the U.S. dollar ABCP market so pricing and precise investors were not disclosed. Though the details are unavailable, there is little doubt that even including the fees payable to ABN and the expenses of setting up a complicated structure, access to the liquid and tightly-priced U.S. dollar ABCP market will make it attractive from a diversification and cost of funding standpoint.
The other transaction also featured paper with three-month maturities, this time from the Development Bank of Singapore. The assets backing the deal are made up of loans made to Singapore statutory boards and bonds issued by government linked companies all of which must be rated at A1-plus or have an A long-term rating combined with a A1 short-term rating.
The self-arranged S$200 million deal received an A1 rating from Standard & Poor's and was issued via an SPV called Singa Secured Assets Ltd. It features a cash reserve to mitigate the possibility of negative carry caused by prepayments and also a 100% committed liquidity facility provided by DBS.
The deal represents a first toe in the water to test investor appetite to the product with the longer-term intention of eventually securitizing S$2 billion worth of low-yielding assets and consequently improving the bank's return on equity. The money raised will be used for lending to mid-tier corporates, which will improve the return that the bank earns, said Frank Wong, DBS' senior managing director for treasury and markets.
He added that DBS has placed S$50 million worth of the deal with retail investors, attracting buyers because the 3% return on the paper is double the amount that local banks offer for three-month deposits.
Both deals represent significant advances for Singaporean securitization and both are likely to be followed by similar structures from other issuers. The credit card deal will likely be shadowed by similar deals now that ABN has solved the tax problems in conjunction with the local authorities, said market pros in Singapore.
Securitization bankers will also be encouraged by DBS' decision to turn to securitization in order to improve its return on equity - even though it is not short of cash - as they have been preaching that mantra to deaf ears for some years. "It looks like it has finally sunk in," said one banker, already planning another round of pitches to local banks.
