An upcoming commercial mortgage-backed securitization originated by Hong Kong property developer Chinese Estates Holdings will be denominated in Hong Kong dollars and placed domestically, according to local sources.

The HK$1.8 billion (US$232 million) transaction, arranged by SG Asia, is backed by rental income from Evergo House and Windsor House, two retail and office spaces in Hong Kong. Moody's has reportedly assigned it provisional ratings. Initial price talk on the issue is 140 basis points over Hibor for the triple-A tranche, 180 basis points over for the double-A tranche, and 240 basis points over for the single-A tranche.

If the price talk proves correct, the pricing on all three tranches appears to be very narrow, agreed sources. "I would say the double-A tranche is 15 to 20 basis points too tight, and the single-A tranche is way too tight, probably by 50 to 75 basis points," said one banker.

While the deal is a positive sign for Hong Kong's CMBS market, more property developers are unlikely to turn to securitization anytime soon. "Given the number of property developers who have managed to obtain bank loans this year, it shows you that [Chinese Estates] couldn't get one at a price they liked. This is not a top-tier company," commented another banker.

SG Asia has a strong distribution network in Hong Kong, another factor in favor of domestic issuance, added another. Its last mortgage-backed issue, Hong Kong Mortgage Finance Limited, was closed in 1997 and also domestically placed.

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