Korea First Bank (KFB) last week priced its third cross-border MBS of 2004 and, as was the case with its debut in March (see ASR, 4/5/04), the deal proved hugely popular with overseas buyers. It priced at Euribor plus 21 basis points.
BNP Paribas, Calyon and Royal Bank of Scotland ran joint books on the 550 million ($717.5 million) issue, the largest international deal to date from Korea, with Calyon also executing the swap. The paper could have been much larger but for issues getting the necessary approval from the Korean Ministry of Finance (MOF), according to one banker. All cross-border deals are subject to government clearance, and the MOF is seen as ultracautious on approving bigger transactions due to concerns over swaps' impact on the Won-Dollar rate.
When the three banks were selected in October from a group of 13 competing firms, sources suggested that they were able to convince KFB they could meet its target pricing of Euribor plus 30 basis points. But as the transaction moved closer to launch, it became clear European demand was such that KFB would comfortably exceed expectations.
The bonds - issued out of the Korea First Mortgage SPV - have a legal final of 2036 and expected average lives of 3.09 years. Fitch Ratings, Moody's Investors Service and Standard & Poor's rated the notes triple-A due to a monoline wrap from Ambac, who also guaranteed first deal. .
Although the Korean cross-border MBS market is in its infancy, the transaction easily set a new benchmark and was significantly inside the all-in pricing of Libor plus 48 basis points achieved by KFB on its first deal, a $499.6 million MBS via UBS.
Clearly the market has tightened since March, and no doubt this deal benefited from the good reputation KFB forged with overseas investors following its debut. KFB's senior management is highly regarded in Asian circles, particularly in its efforts to raise standards of information and transparency.
This deal was also probably helped by news that US-private equity fund Newbridge Capital, KFB's largest shareholder with a 48.56% stake, is in discussions to sell its holding to HSBC. Consequently, some bankers reckon offshore buyers might have seen this as on opportunity to get exposure to HSBC risk.
Even allowing for the change in market conditions and the rumored HSBC buyout, the price difference between deals one and three is significant. And with European investors snapping up the recent unwrapped 1.2 billion MBS from Portugal's Lusitano at just 13 basis points over Euribor (see ASR, 11/15/04), the KFB pricing must have still looked attractive.
According to the leads, the issue was 4.9 times oversubscribed with more than 50 institutional investors participating. "Allocations were spread fairly and evenly to primarily European accounts (95%)," said a source close to the deal.
Meanwhile, one of Japan's most frequent issuers and biggest consumer finance companies, Orient Corporation (Orico), is set to tap the markets again with two deals simultaneously.
Over the next two weeks, Orico plans to issue a 30 billion ($293 million) deal backed by loan and credit card receivables and a 26.4 billion auto loan transaction. Mizuho Securities is handling the loan and card deal, launched through the Clare SPC, with Daiwa Securities arranger for the auto offering via the Oracle Kappa SPC.
The Mizuho-led issue will feature 15.6 billion of 5.5-year senior notes, rated Aaa' by Moody's and a Baa2'-rated 4.6 billion junior tranche. In addition, a separate trust will issue 10-billion of senior beneficial interest certificates, also rated triple-A. Credit enhancement comes through subordination, excess spread and a cash reserve.
The auto loan deal features 17 triple-A tranches with maturities of between four months and four years. Mizuho will support Daiwa on the sale.
Another Japanese consumer finance company, Kokunai Shinpan, is also readying an auto loans offering, with Mizuho again in the role of arranger. The 25 billion deal has a legal maturity of eight years and will be issued through the KC Money Trust.
Moody's has assigned Aaa' ratings to the 18.7 billion senior trust certificates and Baa2' to the 6.3 billion junior certificates, equal to 17.3% support for the senior tranche.
The agency also announced last week it is to publish performance reports on the Singaporean deals it covers. With securitization in the city-state on the rise, Moody's believes the reports will improve transparency and the availability of information to investors. The agency says it has been hard for Asian investors to access current data on the credit risks in deals.
Initially, Moody's will release information on three CMBS offerings: CapitaRetail Singapore, Emerald Assets and Silver Loft Investment Corp. This will include details on the parties involved, note information, collection ratios and rental and vacancy rates.
"The reports combine transaction and loan level data, as well as much of the latest available property market data and analytics used in the CMBS rating and monitoring process," says Moody's Vice-President Li Ma.
Chang Hwa and SKL
set to launch in Taiwan
Details on two upcoming Taiwanese transactions emerged from Taipei last week. Chang Hwa Commercial Bank, which lists the Ministry of Finance as its biggest shareholder, will soon launch a NT$5.375 billion ($167 million) RMBS via Citigroup Global Markets. Meanwhile, Shin Kong Life Insurance (SKL) is readying a NT$1.22 billion real estate asset trust offering, with Industrial Bank of Taiwan (IBT) arranging.
The Bureau of Monetary Authority gave approval on Nov. 23 for Chang Hwa's deal, to be issued through Chang Hwa Bank Trust 2004. The underlying static pool includes 3032 first-lien mortgages, including a mix of fixed rate loans and others linked to the Adjustable Rate Mortgage Index. The outstanding principal is NT$6.6 billion, the weighted average coupon 3.221%, and the average loan-to-value is 66.6%.
All of the loans are attached to properties located in Northern Taiwan, mostly in or around Taipei. The deal will utilize the standard Taiwanese structure, whereby a trustee, Deutsche Bank, will issue four classes of trust certificates plus a subordinate piece. At closing, Chang Hwa will transfer the loans to the trust in exchange for the proceeds of the issue as well as getting ownership of the sub-tranche.
Moody's has attached local ratings of triple-A to two senior tranches, both sized at NT$2.365 billion. In addition, NT$135 million class-B notes and NT$135 million C-paper are rated Aa2'/'A2', respectively. Legal final is 2025 for all classes.
Much of the interest will focus on where the pricing ends up. This will be the second Taiwanese RMBS handled by Citigroup, following a NT$4.4 billion issue in April by Taishin International Bank (see ASR, 4/12/04). That deal saw the 2.32-year triple-A piece price at 25 basis points over ARM, which is around 1.40%.
However, when Chinatrust Commercial Bank tapped the market in August with a NT$5 billion MBS via Lehman Brothers (see ASR, 8/16/04), the spread for the triple-A paper was the same, but marked against the three-month commercial paper index, which at 1.026%, was significantly less than the prevailing ARM.
Even so, Chang Hwa's deal will be priced against ARM, so observers will wait to see if the pickup is inside of Taishin's offering.
Citigroup is also working on another Taiwanese transaction, a NT$4 billion credit card issue for Bank Sinopac, which - subject to completion - will be another first for the country's embryonic market.
As for SKL's transaction, many neutrals will be watching to see how local arranger IBT fares. The deal will be the first occasion IBT works as sole lead, following the termination of its cooperation agreement with Societe Generale (see ASR, 11/8/04).
Under the seven-year offering, SKL will sell its holding in the Shin Kong Zhong Shan Building, a commercial property in Taipei which includes tenants in the banking, electronics and textile sectors. Moody's has assigned provisional ratings of Aaa' to the NT$873 million senior tranche and A2'/'Baa3' to the NT$223 million B-notes and NT$124 million C-piece.
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