Despite being long established as a regional powerhouse in the ex-Japan Asian debt capital market, HSBC did not establish a specialist securitization team until June 2001. That was when Sarwar Ahmad came onboard with the task of building up a franchise, effectively from scratch.
Three years on, HSBC has undeniably established itself as the top player in the Hong Kong securitization market. Aside from confidential private deals, three public transactions have been completed in the territory in the past year - the recent HK$6 billion (US$769 million) government tunnels deal, a HK$3 billion MBS deal for Hong Kong Mortgage Corp. last November and the self-led HK$3 billion taxi loan issue in October 2003
However, the real measure of any bank's regional franchise is its ability to execute deals, domestic and offshore, in a number of countries. With mandates in Singapore, Malaysia, Korea, Australia and India secured, HSBC has moved into the big league in Asian ABS.
Clearly, a lot has changed since Ahmad joined the bank. "Previously, the bank had done some deals in the region, but they were largely resourced by teams from either the U.S. and Europe - clearly not an ideal way to develop a sustainable business model," explains Ahmad. "The bank made the decision to develop the securitization/structured capital business and I was hired to spearhead that effort in Asia-Pacific." Over time, a similar effort to grow the European and U.S. businesses has been taken. Jon Bottorff was appointed global head to manage the expansion of the business on a global basis (see related story, p. 6). The build-out of the franchises in the U.S. and Europe is very positive and supportive of the Asian business.
Ahmad admits it was difficult to build up the franchise, but believes that a measured approach coupled with the strength of the HSBC brand in Asia has been key to the bank's progress.
"A lot of time was invested in developing the internal infrastructure to support the business: finding the right people to staff it and identifying the most appropriate transactions to go after," says Ahmad. "The HSBC platform is very strong, and we have the ability to get in front of all the right clients to make our case. Very few firms can match the range of execution options - including hedging - that HSBC brings to a deal or the resources that HSBC can commit to a deal in this part of the world. So once a clear focus was given to the business, I believe we rapidly got to a position where we were considered a serious player by our clients and competitors alike."
The deal that set the wheels in motion for HSBC was a $400 million credit card deal for Korea's Samsung Card, which was completed in October 2001. HSBC secured the mandate despite bids from more established ABS houses, which was the fillip the team needed.
"The Samsung Card deal was clearly very important. It was our first Korean mandate and was won in the face of competition from all the major houses. We are selective in the clients we wished to work with and for, and to win a transaction from a major client such as the Samsung Group meant a lot to us," Ahmad said. "I believe our approach in Korea paid off when the credit card market went through its consolidation period over the past 12 months and our transaction continued to perform very well. We followed up the Samsung deal with a number of other transactions, notably in Hong Kong, where there had been little activity."
As Hong Kong is effectively HSBC's home turf, the bank is in an excellent position to be involved in future activity. Ahmad hopes that issuance will continue to rise in the SAR. "In Hong Kong, we should see more MBS issuance, trade receivables and property-related transactions," remarks Ahmad. "Stability in the property market and the growth of real estate investment trust (REIT) or REIT-type vehicles in the region could generate more opportunities for CMBS transactions."
HSBC has already been mandated with Goldman Sachs and UBS Warburg on a REIT for the Hong Kong Housing Authority, and it is likely some kind of transaction will be launched during the second half of 2004. Market speculation suggests the bank is also working on another couple of deals in the SAR, so Ahmad has reason to be bullish. This optimism extends to the rest of the region.
"We see opportunities and are working on live transactions, in Singapore [believed to be property-related], Malaysia, Australia and Korea. Taiwan remains quite active, and we are seeing an increasing level of inquiries from Thailand. India already has a reasonably active domestic market, and we are working on something there," says Ahmad. The activity in India is rumored to be an MBS deal.
Along with most of his peers, Ahmad sees plenty of opportunities in China, but agrees it is still a complex and challenging market. "China holds a lot of long-term potential, particularly in RMBS and trade/export receivables, as well as some commercial real-estate deals," he says. "However, there is quite a bit of developmental work to be done there in terms of the legal and regulatory environment. Aside from that, there continues to be a reasonably healthy stream of CDO deals around the region, mostly arbitrage transactions."
Aside from China, perhaps the biggest challenge facing the Asian securitization market is developing the investor base. "Developing a regional or domestic investor base for ABS deals is a real challenge as most deals end up primarily in Europe with some U.S. participation," asserts Ahmad. "We have made a lot of progress in working with Asian investors on the merits of investing in ABS and MBS products. However, a lot remains to be done. If it isn't, the market here will remain dependent on offshore investors and execution in the U.S."
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