HSBC has been selected to arrange what will be Singapore's largest CMBS to date. The S$886 million ($560.1 million) deal will partly refinance the $2.2 billion acquisition by CapitaCommercial Trust (CCT) and CapitaMall Trust (CMT) of the Raffles City complex, located in central Singapore.

The development consists of an office tower, shopping mall, convention center and two hotels. If successful, it will be the first CMBS in ex-Japan Asia to include hotel assets. CCT will fund 60% of the purchase, CMT the remainder.

The entities are real estate investment trusts managed by CapitaLand, one of Singapore's leading property developers. Shareholders in both trusts are due to give approval to the acquisition - which will also be funded through loans and equity issuance - on July 13.

Singaporean CMBS has proved popular among Asian and European investors, offering a few basis points premium over European-issued CMBS for collateral of similar quality.

Consequently, it is no surprise market observers expect HSBC to structure the deal in different currencies. One interesting rumor suggests there may even be an Australian dollar tranche to complement the U.S. dollar or euro notes.

That would be a market first, although the logic behind such a move is sound. Most large Asian and European institutional buyers already participate in Aussie-dollar denominated RMBS, so there is a broad investor base for A$ paper.

In addition, pricing levels of non-RMBS Australian securitizations have tightened markedly in 2006, with investors hungry for diversification. Presumably this appetite would extend to non-Australian assets.

Some bankers feel this would mitigate any perceived extra volatility caused by including hotel assets in the pool. It should be noted, however, the bulk of Raffles City revenues are derived from office and retail space, which is almost 100% occupied.

Whatever happens, the mandate sends a message of intent from HSBC following a disappointing start to 2006. The bank spent six months looking for a replacement for Sarwar Ahmad, who departed as head of Asian securitization in late 2005. HSBC appointed Will Ross as his successor at the end of May (ASR, 06/05/06).

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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