The Middle East seems to be immune to the rest of the problems ailing the securitization world. The oil-rich nations are now sponsoring Shariah-compliant CMBS and RMBS using proceeds from petroleum wealth to serve as a liquidity backup.

As an emerging market, there are also no problems with mismanagement or empty promises.

In July, HSBC Bank Middle East introduced the United Arab Emirates to its first true-sale CMBS, named UAE CMBS Vehicle No.1 Ltd. The deal securitized $67 million worth of office space in the Dubai Technology and Media (TECOM) Free Zone, which comprises areas with lax tax and ownership restrictions. The fact that HSBC got the deal in just before Europe's credit crunch started garnered praise from many market observers.

Increasingly, Middle East governments seem to be warming to securitization, and now that HSBC has laid some groundwork, more deals will follow. "For 2008, this is going to be a strong market for securitization," a source said. "There is a friendly legal environment; someone interested in securitization can get almost anything they want."

Market observers point to Abu Dhabi projects, such as its "2030 plan," which calls for the construction of more than 100 new commercial buildings. "It's hard to believe in any emerging market that if they say they will do it, then they will do it," another source said. "But in the Middle East, somehow, they will make it happen and those office spaces will one day be securitized."

However, rating agencies are urging for a more cautious approach to the region. "At some point - maybe soon, booming construction areas, such as Dubai, will reach saturation," said Jaime Sanz, senior director and head of European emerging market securitization at Fitch Ratings. "But for 2008, we still see very strong fundamentals fueling a healthy level of activity in this market."

Furthermore, some argue that, while the HSBC transaction worked well at the time, similar deals are not likely to be seen in the immediate future.

"While the CMBS market will be difficult in the near term, borrowers are seriously stretching the real estate risk capacity of local lenders and need to tap the markets. What we are seeing so far in 2008 are not really vanilla-type CMBS deals, but property developers looking at funding themselves using structured alternatives to CMBS," said Khalid Howladar, senior analyst at Moody's Investor Service Middle East and Islamic structured finance group.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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