The International Finance Corporation (IFC) has launched the $80 million Emerging Asia CBO Limited via arranger Credit Lyonnais. Union Overseas Bank is the investment manager. The IFC says that the transaction will help to develop the bond markets in Asia, and also promote securitization as a means of raising funds in this region.
The CBO has a portfolio of 31 corporate bonds, and one sovereign bond, worth $79 million. Moody's places the weighted average credit quality of the portfolio in the Ba1/Ba2 range. The bonds are U.S. dollar-denominated with fixed-rate coupons, and the ramp-up period is 60 days from the closing date. The geographical concentration of the assets is as follows:
Korea 25.32%;
Thailand 15.19%
Philippines 12.66%;
Mexico 9.49%;
India 9.37%
Hong Kong 8.86%
China 5.82%
Malaysia 5.7%
Singapore 3.8%
Chile 2.53%
Uruguay 1.27%
The main underlying industries are:
*Banking 25%;
*Utilities 20%; and
*Telecommunications 16%.
The rest of the portfolio is exposed to ten other industries including transportation, which accounts for 2% to 3% of the portfolio. But this does not include the airline industry, which is currently facing difficulties. The bonds were launched by 29 issuers, who are all publicly rated. Moody's has assigned the portfolio a diversity score of 15, which is a mid-level score.
Moody's and Fitch rated the deal:
Class 1: US$28m, coupon 6 month Libor +50bp, rated Aaa/AAA
Class 2: US$24m, coupon 6 month Libor +80bp, rated Aa3/AA-
Class 1 mezzanine: US$12m, coupon 7.54%, rated Baa3/BBB-
Class 2 mezzanine: US$4m, coupon 8.87%, rated Ba3/BB-
Subordinated notes:US$12m, coupon residual interests, not rated
Final maturity is January 30, 2012. The IFC bought the mezzanine and subordinated notes.
There have not been many CBOs in non-Japan Asia although last year All Asia CBO, also managed by Credit Lyonnais, launched $45 million notes. It is not likely that many other CBO issues with significant Asian exposure will follow in the near future. "The current market condition in this region does not favur the origination of arbitrage cashflow CBOs," says Jerome Cheng, assistant vice president at Moody's in Hong Kong. "The arbitrage opportunities are in general diminished."
He continues: "This is more of an arbitrage deal, but it is possible that people will have a renewed interest in collateralized loan obligations, given the capital adequacy of Asian banks outside Japan." Countries where such issues might come from include Taiwan and Singapore.
Tony Egerton at multi-line insurer Centre Solutions reports that there have also been attempts to structure synthetic CDOs in non-Japan Asia. But these might require a wrap. "Because of the implications for the global and regional debt markets wraps will be extremely significant - the major exporting companies of the region are going to suffer," he says. "The role insurance companies could take in developing a synthetic CDO market would be to take a mezzanine portion of a securitization, or to provide coverage of the super senior tranches as in Europe."
