Malaysia's central bank, Bank Negara Malaysia, last week launched its first Sukuk Ijarah (lease-backed notes) deal.

The M$400 million ($107.5 million) one-year offering, which uses a securitization-type structure, is the first transaction from an ongoing program that BNM expects will serve as a benchmark for short-term Islamic bonds.

BNM officials said subsequent transactions will likely be smaller in size - between M$100 million ($26.9 million) and M$200 million ($53.7 million) - with tenors stretching between three months and three years.

The bank is keen to tap into the growing demand for Islamic products from local and foreign investors, particularly those located in the Middle East.

The debut transaction - to be issued via the BNM Sukuk Berhad special purpose vehicle - will be backed by a pool of unspecified assets worth about M$500 million ($134.3 million). The assets will be sold to the SPV and then leased back to BNM, which will purchase the assets at maturity for an undisclosed sum.

As interest payments are banned under Islamic law, investors will instead receive a profit share based on the lease revenues on a semiannual basis. BNM expects most investor interest to come from banks and corporates.

BNM's notes are likely to offer a slight pickup on government-issued one-year Islamic paper, which was trading around 3.4% as of press time.

Elsewhere, South Korea's state-controlled secondary mortgage agency, Korea Housing Finance Corp., completed its first MBS of 2006. The W380 million ($389.5 million) deal - issued from the KHFC MBS SPV - was jointly led by Daehan Investment & Securities, Hanwha Securities and Bookook Securities. The transaction was the 17th completed by KHFC since its inception in March 2004, with its debut MBS completed in June of that year (ASR, 6/28/04).

The transaction is backed by a W390.6 billion ($401 million) pool of fully amortizing loans acquired by KHFC from 17 originators. The SPV issued seven tranches - rated triple-A by local credit rating agencies - with maturities from one to 15 years. All bonds are fully guaranteed by KHFC.

Coupons for the one-year notes were set at 4.71%; 5.08% for two-year bonds; 5.21% for three years; and 5.55% for five-year paper. The seven-year tranche paid 5.67%, the 10-year notes offered a coupon of 5.79% and the 15-year piece priced at 5.91%.

Spreads over Korean Treasurys widened on the longer-dated tranches. While the one-year paper offered just 16 points over its government equivalent, the pickup on the 10-year paper was 55 basis points. There are no government bonds with tenors beyond 10 years.

KHFC plans to raise W70 trillion ($72 billion) through securitization by the end of 2008. Though the agency sees itself as a promoter of MBS issuance, many bankers argue it has crowded out private issuers, using its influence to acquire loans that domestic institutions should be securitizing independently.

The only Korean bank to regularly issue mortgage-backed deals has been Standard Chartered First Bank - formerly known as Korea First Bank - although all of its borrowings have been conducted via the cross border, rather than local, market. As reported previously in ASR, SCFB is planning another 500 million ($596.2 million) monoline-wrapped MBS, which it hopes to complete in the first quarter.

While Standard Chartered's participation as arranger was already known, talk circulating in the market last week suggests SCFB will bring on board two joint lead underwriters, Calyon Securities and Royal Bank of Scotland. The move would enable the bank to tap into a broader base of European investors.

Sources at Standard Chartered declined to comment. However, the rumors seem plausible given the participation of Calyon and RBS on SCFB's last two public cross-border deals in November 2004 (ASR, 11/29/04) and February 2005 (ASR, 2/21/05).

Also in Korea, the Financial Supervisory Service last week revealed a significant increase in the use of securitization to finance real estate development. The regulator reported ABS issuance for new housing and commercial property construction reached W4.9 trillion ($5 billion) in 2005, more than three times the W1.6 trillion ($1.4 billion) recorded in 2004.

FSS officials attributed the change to rapid expansion in South Korea's new cities, particularly Pangyo and Hsaseong, located south of the capital Seoul.

The rise in overall ABS issuance last year was not quite as pronounced. However, the 5.6% climb to W28.6 trillion ($29.3 billion) highlighted the importance of securitization to Korea's institutional borrowers.

In other news, following a change of ownership, Thai brokerage United Securities plans to position itself in Thailand's growing securitization market. While the firm has yet to make an impression as an arranger or seller of structured products, its new owner, Japan's Asia Partnership Fund, wants this to change.

Aside from supporting corporate borrowers with their securitization programs, APF officials told local media last week it wants United Securities to exploit the untapped retail space. APF hopes Thailand will follow the experience of Japan, where securitized products - particularly those tied to property - are more readily available to retail buyers.

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

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