Hong Kong Mortgage Corpor-ation (HKMC), the territory's secondary mortgage agency established in 1997, has completed the latest deal from its Bauhinia MBS vehicle. HSBC arranged the HK$2 billion ($256.9 million) offering, acting as sole book runner for the institutional part of the deal and joint lead with Standard Chartered for the retail tranches.

The transaction, Asia's first retail MBS and the region's second retail securitization, is backed by a pool of 4,373 mortgages purchased by HKMC from the Housing Authority, another government entity. The outstanding principal at launch was HK$2.1 billion.

As expected, the institutional tranches were fully subscribed. The deal was comprised of a HK$450 million 5.25-year fixed rate tranche, with a legal final of six years, which carries a 3.6% coupon. The prepayment lockout over the first four years represents the first time this has been done on a Hong Kong MBS deal. In addition, a HK$650 million floating rate piece, with a 4.8-year expected average life, offers a pick up of 18 basis points over Hibor.

According to HKMC officials, both tranches were placed with pension funds, investment funds, insurance companies and banks. As the notes carry a HKMC guarantee, they qualify for 20% risk weighting under Hong Kong Banking Ordinance.

The offer period for three fixed-rate retail tranches began Oct. 20, and ends on this Friday. Including HSBC and Standard Chartered, 19 placing banks - totaling 900 branches - make up the syndicate.

Retail buyers are offered returns of 1.7% for HK$250 million of one-year paper, 2.65% for the HK$400 million three-year tranche and 3.05% for the HK$250 million four-year bonds.

The precedent for an Asian securitization structuring retail tranches into the deal was the Hong Kong Government's HK$6 billion tunnels-receivables offering in May (see ASR 5/10/04). The three-year retail tranche on that deal priced at 2.75% and given the 4.6-times oversubscription rate, all parties reportedly feel safe HKMC can offer a little less spread with negligible impact.

Both Moody's Investor's Service and Standard and Poor's rated the deal at the sovereign ceiling level of Aa3 and AA-, respectively.

Meanwhile, in Japan, Mizuho Trust and Banking Co. is targeting smaller regional governments and banks, buying up their loan books with a view to securitizing them. The Shiga Prefecture Government is said to be the first to sign up for the scheme, with a 6 billion ($55.4 million) deal scheduled for March 2005.

Mizuho has purchased rights to Shiga government-guaranteed loans made to 300 small businesses, originated by Shiga Bank and Biwako Bank, which will be packaged into beneficiary rights and sold to investors.

Shiga Bank is likely to purchase around 40% of the deal to sell to retail investors and, with Biwako Bank, will retain another 30% as an investment. Mizuho will target its own high net worth clients for the remaining 30%.

Deals backed by loans to SMEs typically end up as collateralized loan obligations (CLOs), which have been common among larger regional and urban governments with sizeable loan books. However, the high costs of setting up special purpose companies have prohibited smaller, rural provinces from launching CLO-type deals.

Utilizing cheaper trust vehicles, as Mizuho has done for Shiga, could result in similar ventures by other provinces in the next 12 months. However, there are alternatives.

"I think it is possible smaller governments will engage in this but there are various channels now, not just the Mizuho structure," said an analyst at a foreign house in Tokyo. "Japan Finance Corporation for Small Businesses launched its securitization program earlier this year where they will purchase loans/SME bonds from around the country and structure them into SME CDOs [with an estimated 150 billion expected to be issued in the next 12 months], so I am not sure why Shiga decided to use the Mizuho structure."

Meanwhile, Towa Real Estate Development Co., one of Japan's biggest property developers, has established a securitization program to finance the construction of future projects.

Chuo Mitsui Trust and Banking Co. has set up for Towa a special purpose vehicle, which has so far raised 6 billion. The money is being used to build two condominium developments, one located in Yokohama and the other in Osaka.

Chuo Mitsui is targeting institutional investors to buy bonds backed by sales of the condos, due to start in January with completion of both sites scheduled for late 2005 or early 2006.

In Taiwan, Taishin International Bank has mandated ABN AMRO to arrange its second securitization. Taishin's next offering will be a NT$10 billion ($296.1 million) credit card deal, which will be Taiwan's biggest ABS transaction by some distance.

Taishin made its securitization debut in April, with a NT$4.4 billion mortgage-backed issue via Citigroup Global Markets (see ASR 4/12/04).

As for ABN, securing the mandate goes some way to vindicating its decision in June to boost its Asian securitization group, headed by Gary Watmore. The bank added three new members to its Singapore-based team, including Mindi Lee from HypoVereinsbank, who was hired specifically to get mandates in Taiwan, Hong Kong and China.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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