Outside Japan, the Asian securitization market had a relatively quiet year in 1999. Though issuers and arrangers hoped that the year would mark a comeback for cross-border ABS deals after a similarly slow 1998, investors and monolines remained wary of Asian risk. In addition, financially weak issuers, high levels of domestic liquidity and the lack of a liquid swap market continued to holdback ABS prospects.

As a result, many houses either scaled down or redirected their securitization efforts to Japan, where the booming ABS market saw huge demand for structured finance pros.

But there were some bright spots. After suffering a real estate crash that sent property prices plunging by 50% in 1998, Hong Kong originated two global commercial mortgage-backed securitizations: Merrill Lynch & Co.'s $572 million issue for Wharf (Holdings) Ltd., and Deutsche Bank's $302 million issue for Sino Land Co.

Residential mortgage-backed securitization got a boost from the Hong Kong Mortgage Corp.'s pilot program, under which it issued its first-ever MBS, with more to follow in early 2000.

Outside Hong Kong, another noteworthy transaction was the $300 million future shipping receivables-backed issue for China Ocean Shipping (Group) Co. (Cosco), the only term securitization deal from China in 1999. It took Chase Manhattan Asia nearly two years to close the deal a sign of the tough market conditions facing Asian ABS transactions.

In Southeast Asia, cross-border securitization remained on the back burner for most markets. Besides several collateralized bond obligations and conduit deals, Singapore has yet to issue a true securitization that conforms to international standards, but both it and Malaysia will be fruitful ground for securitization next year, ABS pros argued.

In Indonesia, the big news was that a $178

million motorcycle-loan backed issue arranged by Salomon Smith Barney for Putra Surya Multidana paid down, much to the relief of investors. It was joined as a testament to the strength of securitization by the continued performance of a $250 million future flow deal arranged by ABN Amro and Citicorp for Pakistan Telecommunications.

One of the least expected developments was the sudden growth of domestic securitization structures tailored for domestic investors. High domestic liquidity and issuers' desire for off-balance sheet financing drove the rise in quasi-ABS deals in South Korea, Singapore and Thailand.

Such deals involved well-known originators, local-currency denominated assets, and placement in the domestic market. Korea alone produced at least a dozen domestic deals in the second half of the year.

Though they lacked the rigorous historical analysis, true sale and other legal and structural requirements of securitizations in western markets, those transactions are the direction in which Asian ABS is headed.

"The GT Stars deal is a good example of the kind of financing that you will see going forward in Thailand and elsewhere," predicted one banker in Hong Kong, referring to an innovative $107.9 million deal backed by distressed mortgage assets Lehman Brothers purchased from the Thai Financial Restructuring Authority and sold to Thai investors. "That is where the opportunities in Asia will be, not cross-border deals."

While the rest of Asia languished, Japan was the brightest spot in the region. Though domestic investors were still reeling after the country's biggest ABS issuer Japan Leasing Corp. collapsed at the end of 1998, changes in Japan's securitization laws and a continued credit crunch unleashed a flood of first-time issues in the weeks before Japan's fiscal-year end in March.

"In 1999, Japanese securitization graduated from mainly a distressed funding mechanism for finance companies to a more or less permanent fixture in an array of instruments as a funding source, a balance sheet management technique and a liquidity resource for all entities. It also witnessed the expansion of the domestic ABS investor base a firm basis for future sustained growth," said Alexander Batchvarov, head of international ABS research at Merrill Lynch in London.

Lack of highly rated domestic paper, a Japan premium exacted by overseas investors, and growing understanding of securitization among domestic investors drove the growth of the yen-denominated market.

Though a government injection of public funds into the banking system put a damper on residential mortgage-backed securitization after Bear Stearns & Co. launched the first successful MBS for Sanwa Bank in May, that will be more than compensated for by deals backed by commercial real estate and traditional assets like auto loans and leases, added Batchvarov. In addition, securitization of non-performing real estate loans long seen as key to unlocking Japan's illiquid real estate market got a big boost after Morgan Stanley Dean Witter issued the first NPL-backed deal in November.

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