Fitch Ratings last week released its "Asia Pacific 2005 and 2006 Outlook," in which the agency forecasted stable cross-border issuance from the region in 2006, following last year's $6.2 billion total. However, the make-up of issuance in terms of asset classes is likely to "change measurably."
South Korea, which last year accounted for 57% of volumes in ex-Japan Asia, will see a move away from consumer finance deals towards residential mortgage securitization.
Of the three dominant consumer finance ABS issuers, one is being sold - LG Card -while another, Hyundai Capital, is likely to take advantage of a corporate credit rating upgrade to issue plain vanilla debt. The other, Samsung Card, will continue to securitize, and is currently working with Royal Bank of Scotland on an auto loan ABS.
Fitch's bullishness on RMBS is in line with the thinking of many bankers. Standard Chartered First Bank is due to launch a 500 million ($599.2 million) monoline-wrapped deal this month. Parent company Standard Chartered is joint lead manager with Calyon Securities and RBS.
In addition, the state-controlled Korea Housing Finance Corp., the country's dominant domestic MBS seller, has been linked to a debut cross-border deal, while private originators Samsung Life, Hana Bank and Kookmin Bank are other likely issuers.
Singapore is Asia's second largest cross-border market. In the recent past, issuance has been dominated by CMBS deals tied to real estate investment trusts, but Fitch expects volumes from this sector to slow in 2006.
"The dynamics of new issuance are also likely to change due to the Monetary Authority of Singapore's approved increase of leverage parameters for Singapore REITs to 60% (from 35%). This has generated higher leverage CMBS enquiries, however, aggressive loan bids from local banks and tightening unsecured bond spreads are likely to dampen CMBS issuance," Fitch analysts stated.
Fitch says this may be offset partly by Singaporean REITs securitizing collateral acquired in other countries, including China and Korea. There is also likely to be a revival in deals backed by deferred payments in yet-to-be completed residential projects. One developer, CapitaLand, is currently marketing such a deal, with HVB the lead manager (ASR, 13/3/06).
Elsewhere, Taiwan's market at the back end of 2005 was dominated by CBOs collateralized by distressed structured products. Although there have been questions over the continued appeal of these CBOs to investors -particularly on whether the yields compensate for the risk taken on -it is likely the first half of 2006 will see further activity.
E-Sun Bank is lining up its third such offering with a NT$14 billion ($431.3 million) self-arranged deal; First Commercial Bank is rumored to have hired Deutsche Bank for a NT$13 billion issue, while President Securities is known to be working with Capital Securities on a NT$10.8 billion issue.
Once this sector fizzles out, Fitch expects greater diversity in the second half of 2006, with real estate deals, trade receivables offerings from corporate borrowers, and financial institutions likely to tap the domestic market as well.
In addition, Fitch predicts Hong Kong will see further CMBS activity, more consumer finance activity to come from Thailand, with the country also likely to see some MBS issues. China should see some issuance as well, despite some practical obstacles to market development.
Meanwhile, Thailand's Government Housing Bank will soon appoint a financial advisor to assist planning for its THB30 billion ($766 million) mortgage-backed program (ASR, 10/17/05). The country's biggest originator - GHB has a 38% market share - will appoint a local firm to fulfill the role and has invited several to pitch.
There has been some speculation in the market that Citigroup Global Markets had been appointed, something the bank categorically denied when asked for confirmation. That makes sense given that under Thai regulations, financial advisors cannot be involved in the underwriting effort, where a bank would be able to generate significantly higher fee income.
As soon as GHB appoints an advisor, it is likely to send out requests for proposals for banks to join the syndicate. Local banks will no doubt lead the THB10 billion domestic portion of the program, while at least one foreign bank will coordinate the sale of the THB20 billion offshore tranches.
According to one source well-versed in the Thai ABS scene, the offshore part of the deal would likely require the participation of a monoline guaranty. "The borrower has had some issues with non-performing loans, and I think an unwrapped deal would be very hard to place with foreign investors," the source said. "If you went down that route, GHB would have to be prepared for wide pricing, which would make the exercise nonsensical.
"GHB's deal will likely carry a monoline wrap to ensure higher ratings and better pricing," added the source. "The monolines would not have been interested in Thai exposure for a few years after the Asian financial crisis, but the situation is different now and I think they will get involved in offshore deals again."
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