SINGAPORE - Judging by the number of attendees at Fitch Ratings' CDOs, REITs, and Securitization Conference 2006' held here last week, interest in structured finance within Asia has never been higher.
Along with the usual suspects from investment banks, monolines, legal and accounting firms, there were several representatives from potential issuers, eager to learn more about securitization.
In keeping with the positive mood, Fitch analysts were generally bullish for the region's prospects in 2006 and beyond. Kevin Stephenson, head of Fitch's Asia-Pacific structured finance group, said that while local currency securitization deals would continue to dominate, he also expected growth to continue in the cross-border field.
Interestingly, Stephenson highlighted Indonesia and Thailand as potential growth markets. 2005 saw the first Indonesian cross-border securitization for eight years, and he anticipated further activity going forward.
"Thailand is attracting a lot of interest and becoming a bigger focus for arrangers," added Stephenson. "Although there were only three deals in 2005, this year is likely to easily surpass that figure with more repeat issuers, so we could be seeing the start of a flow business in Thailand. Activity has been dominated by consumer finance assets, but I think we will see the first RMBS late this year or early 2007, leading to follow-up transactions."
Juniza Zahari, vice president of structured finance at Malaysian Rating Corp., was invited to talk about prospects in Malaysia, which experienced a wave of activity in 2005. The year to date has been disappointing, but Zahari says the long-term prospects are good, especially with ABS spreads narrowing in comparison to straight -debt deals.
"With interest rates rising, subsequently raising the cost of funds, corporates needing financing will increasingly choose the ABS route," Zahari asserts. "This will enable them to get higher ratings and achieve cost benefits comparatively.
"Islamic finance will continue to grow, particularly involving real estate assets, and exceed that of conventional ABS," adds Zahari. "In addition, the REIT market is expanding. Although acquisitions have been funded through equity to date, I expect more to be financed through debt going forward. Investors are also starting to talk about synthetic CDOs."
On to HK and Singapore
Staying on the theme, Wit Solberg, a senior director in Fitch's structured finance and REIT group, gave an insightful talk on some potential credit clouds emerging in Hong Kong and Singapore.
While noting Singaporean CMBS issued by REITs are "among the best CMBS credits in the world due to low leverage and good management," Solberg said Singaporean and Hong Kong trusts show a high concentration both in terms of the number of properties and tenants.
With competition to acquire assets on home soil increasing, REITs are increasingly looking offshore - particularly China - to boost portfolios. Offshore expansion brings its own challenges.
"Pan-Asian REITs have clearly arrived. With a mandate for growth, Singapore and Hong Kong REITs are soon to become diverse and complex regional property companies that must face exchange rate volatility and unfamiliar legal environments," Solberg says. "Managing these new companies will require broader corporate sophistication, on the ground property management expertise, and further transparency in investor disclosure."
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