The push for securitizing state assets in Japan grew stronger last week when the DIET - Japan's highest legislative body - approved the government's economic policy guideline for 2006, designed to eliminate its fiscal deficit over the next few years.
Aside from reducing spending and raising consumption tax, the guidelines advise the government raise as much as 140 trillion ($1.2 trillion) by the end of fiscal 2015 through securitization of loans and real estate.
The plan does not reveal a start date for the program or the specific assets to be sold. However, it has been widely speculated that office buildings housing certain government departments and civil servant housing in central Tokyo would be obvious candidates.
Already plans are afoot to raise approximately 374 billion by selling over 200 housing complexes in the Tokyo districts of Chiyoda, Chuo and Minato.
With the Government Housing Lending Corp. (GHLC) - approaching 50 mortgage-backed deals since debuting in early 2001 - due to become an independent entity at the beginning of 2007, the new program would ensure state-linked ABS continues to thrive.
However, one banker said optimism over the plan should be tempered until further details emerge.
"The government has been in talks of securitizing assets for a long time, and the reason it has not done so (mortgages aside) is because securitization is costly compared to other alternatives," the banker explained. "However, the DIET now seems to believe ABS is the best solution, so we should see some deals executed. Investors would welcome any new products, but we still do not know what assets and to what extent securitization will actually take place, so there is not that much excitement from market players yet."
Staying in Japan, Merrill Lynch's latest research suggests the market is on course to exceed last year's record volumes. Merrill says known first half issuance hit 3.9 trillion, a 25% increase on the same period in 2005.
Disclosure on securitization transactions is not all it could be in Japan; with a good proportion of deals placed privately with no details released. So in reality, the figure could be significantly higher.
Of the reported deals, residential mortgage-backed activity accounted for 2.4 trillion - a 65% year-over-year increase. While GHLC remains the single biggest issuer, private sector activity hit 1.3 trillion in the first six months, with Bank of Tokyo Mitsubishi the dominant private issuer.
Other asset classes performing well thus far include commercial mortgages and primary CDOs, with deals involving loans to small and medium sized enterprises to the fore. Consumer finance ABS issuance has not fared so well, principally due to spread widening in the sector.
Elsewhere, Australia's most active RMBS issuer, Macquarie Securitisation, is putting the finishing touches to its third deal of 2006. The specialist originator has hired Macquarie Bank and Deutsche Bank as joint lead managers on an A$1 billion ($754.2 million) prime MBS, launched through its PUMA Masterfund facility.
The arrangers fulfilled the same role on Macquarie's other deals this calendar year; the A$1 billion prime deal in April (ASR, 04/17/06) and a similar-sized offering in May backed by a pool of low documentation loans (ASR, 06/5/06).
The latest deal is backed by a pool of 8728 loans worth A$2.35 billion, with a current weighted loan-to-value of 73.07% and seasoning of 17 months. PMI and Genworth provide the mortgage insurance on the transaction.
Moody's Investors Service and Standard & Poor's have assigned triple-A ratings to the A$978 million senior piece, which has a 2.5-year expected average life. The A$22 million subordinated notes are respectively rated Aa2/AA for a 5.7-year average life.
Pricing was due as of press time. Given that Macquarie achieved its lowest ever all-in-costs for its earlier efforts -15.3 basis points over the Bank Bills Swap Rate for the prime deal; 19.4 points for the low-doc offering - it will hope to at least match the result of the April transaction.
Two factors suggest that is possible. Firstly, unlike some issuers who put a small portion of low-doc loans into an otherwise prime pool, Macquarie's latest effort is 100% backed by full-documentation mortgages. Bankers feel this will be welcomed by investors.
Additionally, the issuer may benefit from having no competing RMBS transactions in the marketplace.
Staying Down Under, Mobius Financial Services has launched its first lease-backed securitization with an A$161.9 million issue. Arranged by Commonwealth Bank of Australia, the deal will be sold via the Mobius ELR-01 Trust facility.
Mobius was established in 2002 by Allco Finance Group and Australian Financial Investments Group to originate, service and fund financial assets through securitization. While the latest offering is its first lease-backed ABS, Mobius is a renowned non-conforming MBS issuer.
The current deal is backed by a pool of 15,820 leases with an outstanding principal of A$138.7 million and average seasoning of eight months. The leases have been extended to a diverse range of clients. Electronic bill payment equipment leased to newsagents make up almost 30% of the portfolio.
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