Consumer credit provider Samsung Card and Standard Chartered First Bank - the South Korean arm of Standard Chartered - are likely to tap the cross-border ABS market in the first quarter, sources said.
Samsung is rumored to have hired Royal Bank of Scotland for its deal. Though RBS declined to comment on the size or timing, the underlying assets are almost certain to be auto loans. RBS last July furnished Samsung with a $300 million warehousing facility of those assets.
RBS was supposed to arrange a $300 million ABS for Samsung in November 2005. However, it pulled out at the 11th hour, citing "commercial reasons." Standard Chartered stepped in to fill the void, and the transaction was something of a landmark with Samsung becoming the first Korean entity to secure triple-A ratings for an unwrapped deal. The bonds were sold into a conduit and priced at 17 basis points over Libor.
Meanwhile, SCFB has awarded arranging duties to Standard Chartered's Hong Kong-based Asian ABS team for an RMBS offering, hardly surprising given SCFB was formed when Standard Chartered bought in April 2005 a 100% interest in Korea First Bank.
While this will be the first securitized issue under the SCFB banner, KFB issued three successful public cross-border MBS deals in 2004 and 2005. The most recent was a E500 million ($671.1 million) offering in March 2005, jointly led by Calyon Securities, RBS and Standard Chartered (ASR, 4/4/05). The deal priced at 13 basis points over Euribor, which remains a benchmark for Korean cross-border issues.
The inclusion of a wrap from MBIA secured triple-A ratings from Fitch Ratings, Moody's Investors Service and Standard & Poor's, and was a significant reason for the tight spread levels.
With rating agencies now willing to assign triple-A ratings for unwrapped deals, it will be interesting to see what kind of spread would be achievable by SCFB if it chooses to do a public, rather than conduit, deal. Sources indicate the bank is considering both wrapped and unwrapped options.
Investors worried about legal system, North Korea
Some bankers believe overseas investors are not convinced Korean risk is deserving of the highest ratings, and those investors have concerns regarding the nation's legal system and the North Korean situation. Consequently, some extra spread could be expected, with a publicly issued MBS likely to offer 20 to 25 basis points over Libor or Euribor.
"Based on my view, an unwrapped triple-A is a logical step for a public RMBS," a Hong Kong-based banker not involved in the deal said. "But tight pricing would be dependent on the lead manager having a wide distribution network. [Standard Chartered] has been good using its conduit, but if it is to do a E500 million-plus deal, it might be wise to get other banks on board."
Regarding additional activity in 2006, the banker was confident South Korea will continue to offer more opportunities than any other Asian market, excluding Japan.
"I would guess we will see at least 10 cross-border deals, probably more," he said. "Hyundai Capital, LG Card and Samsung Capital should do repeat deals, as might Korea Air Lines and Asiana Air. I am hopeful SCFB will do more RMBS deals, with Samsung Life another potential issuer."
Elsewhere, Hong Kong Link Real Estate Investment Trust (Link REIT), the $3 billion property trust listed in November 2005, has sent out requests for proposals for the refinancing of a HK$12.5 billion ($1.6 billion) bridge loan. The loan provided most of the funds for the acquisition by Link REIT from the Hong Kong Housing Authority of 151 shopping malls and 79,000 parking spaces.
With the loan scheduled to mature in November, the REIT's management is looking at three refinancing methods: syndicated loan; straight bond; or CMBS issue. Several banks have been asked to submit proposals.
HSBC leading the pack
Most believe HSBC is the favorite, given its involvement (along with Goldman Sachs and UBS) in coordinating Link REIT's IPO and its dominance of Hong Kong's capital markets. However, if the CMBS route is chosen, the absence of a designated Asian securitization head at HSBC since Sarwar Ahmad's departure late last year could open the way for other arrangers.
Many bankers feel CMBS would be the logical option. While syndicated loan spreads in Hong Kong are razor thin, a securitized deal would offer a longer maturity and competitive pricing. This has been the favored method for the seven Singaporean REITs, which have extensively used securitization for refinancing and funding acquisitions.
Fortune REIT, which is Singapore-listed but investing exclusively in Hong Kong retail properties, last July highlighted the dual benefits of CMBS. Its HK$2.39 billion ($306.8 million) deal, arranged by HSBC and launched out of the Triumph Assets SPV, featured HK$1.74 billion ($224.3 million) of triple-A rated paper that priced at 25 points over HIBOR for a five-year expected life (ASR, 7/25/05).
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