Macquarie Wanda Real Estate Fund (MWREF), a joint venture between Australia's Macquarie Group and Chinese property developer Dalian Wanda, last week closed the first cross-border CMBS involving properties located in Mainland China (ASR, 9/18/06).

Citigroup acted as sole bookrunner on the $145 million issue, called Dynasty Assets, which it jointly arranged with Macquarie Bank.

The 2.75-year deal - rated A2'/'A-' by Moody's Investor's Service and Standard & Poor's - is secured over nine retail properties located in nine cities in Eastern China. The properties - independently valued at $475 million - boast an average occupancy rate of 98%. Tenants include international names such as Wal-Mart, Kentucky Fried Chicken and Pizza Hut.

Initially marketed at 65 basis points over three month Libor; it became clear early on that investors would want some extra premium given the first time nature of the transaction. Consequently, price guidance was revised to a range of 75 to 85 basis points.

The bonds ended right in the middle of that range at 80 basis points, which rival bankers considered a reasonable result. A well-placed source said less than 10 investors bought into the deal, with interest coming from asset managers, banks and funds.

There has been some doubt as to whether the transaction offers a long-term replicable structure for cross-border deals involving Chinese assets. That is nothing to do with the quality of the deal itself, but due to a recent legal development on the ownership of Chinese property.

The ownership structure in MWREF's transaction involves the properties being registered to nine offshore holding companies (PHC). The PHC's - ultimately controlled by MWREF - were established in Mauritius due to a tax treaty the country has with China.

However, the Chinese government now stipulates companies must have a Chinese presence to own property in the People's Republic. This prohibits 100% offshore PHC's - as used in MWREF's deal - from acquiring new assets.

Despite this, there is nothing to prevent offshore PHC's from securitizing existing assets, and there is a strong possibility similar deals to MWREF's will emerge in the short term.

According to market sources, one such transaction is already in the works. GZI REIT, the Hong Kong-listed trust that owns purely Mainland China properties, is rumored to have hired Citigroup and HSBC for a $150 million CMBS.

The two banks and Singapore's DBS Bank acted as coordinators for GZI REIT's $216 million initial public offering late last year, so their involvement on any securitization would not surprise many.

GZI REIT was established by Guangzhou Investment Co. (GZI), the investment arm of the municipal government of Guangzhou, a rapidly expanding city in southern China.

The REIT acquired four commercial properties - focusing on retail and office space - from GZI that were valued at HK$4 billion ($513.9 million). Aside from the equity offering, a further HK$1.3 billion of the financing came through a three-year syndicated loan. Rival bankers expect the CMBS to be a refinancing of the loan.

Elsewhere, Australia's National Australia Bank (NAB) last week launched a A$3 billion-equivalent ($2.3 billion) RMBS through its National Trust facility. Citigroup and Deutsche Bank are joint lead managers for the two-currency offering, with pricing expected in the next fortnight.

NAB will sell two senior tranches - including a US$1.4 billion piece and 400 million ($501.9 million) of euro notes - rated triple-A by Moody's and S&P; plus A$60 million of Aa2/AA-rated subordinated notes.

Staying Down Under, Adelaide Bank has priced an A$1.5 billion-equivalent RMBS from its TORRENS program. ABN Amro and Deutsche were joint leads on the prime offering, which featured zero low documentation mortgages in the underlying pool.

The 450 million class A1 bonds - rated triple-A by Fitch Ratings, Moody's and S&P - pay 10 basis points over Euribor on a 2.6-year average life.

Sources indicate over 30 accounts participated in the transaction. The euro notes were bought exclusively by European investors, while buyers from Asia, Australia and Europe took up the two Aussie dollar tranches.

Australian consumer finance company Liberty Financial has hired Macquarie Bank to arrange an A$150 million auto loan ABS. The deal is expected to launch before the end of October. Liberty last came to market in March with an A$1.2 billion securitization of non-conforming residential mortgages (ASR, 3/13/06).

Meanwhile, Japan's Bank of Tokyo-Mitsubishi (BOTM) is looking to securitize approximately A$100 million of motorcycle and boat engine loans. BOTM acquired the receivables from the Australian subsidiary of Yamaha Motor Co.

The bank has set up an Australian special purpose trust from which it intends to issue bonds backed by loan revenues. BOTM did not offer details on timing of the transaction, but it seems likely it will market the deal to both Australian and Japanese investors.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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