Malaysia's securitization revival is taking shape, with the talked-about Sunway Holding CMBS deal expected before year end. Investors hungry for Malaysian paper will be pleased that Sunway is not the only deal in the works, according to industry sources.

The CMBS issue for Sunway Holdings - total deal size to be confirmed, but expected to be between RM240 million and RM265 million (in the mid US$60 million range) - was detailed recently in ASR (9/15).

Raj Shourie, managing director and head of Asian securitization at Deutsche Bank, said that one of the key objectives in the Sunway securitization is the disposal of non-core property assets.

Deutsche is working on another property transaction in Malaysia. Shourie is hearing of other projects in the pipeline.

"We also continue to receive inquiries on potential transactions such as CMBS," said Zaiton Mohd Hassan, executive director, at the Malaysian Rating Corporation Bhd (MARC). "Most of the deals involve collaboration between international and local banks. Investor appetite is gradually improving, as these are relatively new instruments, since the market really only started in the year 2001."

The guidelines on asset-backed securities (ABS) in Malaysia came into effect in April 2001, spawning several securitization deals in the domestic market.

Beyond CMBS

In 2003, the Malaysian market seemed poised to concentrate on real estate assets, but there is the possibility for some other assets to come to market. Shourie speculates that we might see consumer finance deals, but most likely NPLs and corporate loan transactions in the near future.

"Opportunities in different asset types are being sought in the domestic market in Malaysia, with the possibilities of CLOs and CMBS as well as auto loans being done," said Jerome Cheng, vice president in the structured finance group at Moody's Investors Service in Hong Kong.

According to Hassan, there has been increasing interest in CDO transactions and securitization of auto loan receivables from banks, which, she adds, is an encouraging sign as they are actively looking at securitization as an asset liability management tool.

However, in terms of the opportunities for cross-border transactions, these are somewhat curtailed, says Cheng at Moody's, because of an absence of a liquid swap market.

Islamic bonds

But another alternative for issuing cross-border is the development of the Islamic bonds, as occurred last year with the Malaysia Global Sukuk transaction. The Malaysian market has been groundbreaking in its development of Islamic ABS transactions that are Shariah-compliant (see ASR 6/23/03). In June 2002, Malaysia Global Sukuk Inc. issued a US$600 million deal - which enabled the government of Malaysia to raise financing within the Islamic principals. "This was a well-received deal in the market, and there has been a lot of interest following from this transaction," said Cheng.

Overall, this was an important deal to bring to the international market, which many believed would be replicated by other Islamic states. There are rumors that a possible second Sukuk deal could be in the works.

A recent deal, completed in August of this year, was backed by the Islamic Development Bank (IDB), a supranational institution established by member countries of the Organisation of the Islamic Conference. This was another example of an Islamic compliant deal. Allen & Overy, counsel on the transaction, said that they had built on the innovative issue by Malaysia Global Sukuk. The US$400 million issue, with trust certificates passing through the SPV Solidarity Trust Services Limited, was structured

to be compliant with Shariah

principles.

According to the MARC, the Malaysian market has certainly seen very strong growth in Islamic securities issuance. Last year alone, RM13.8 billion (US$3.63 billion) in Islamic securities was issued, exceeding conventional issues amounting to RM12.8 billion (US$3.37 billion).

"The Malaysia Global Sukuk Inc. issue was successfully placed to investors in the U.S., Europe, Asia and the Middle East," Hassan said "I think that the significance of this deal is that it demonstrates that the potential market for Islamic instruments is really the global market and not just confined to Islamic investors."

"A well-structured instrument with the features and risks clearly understood will attract good response from both Islamic and other international investors alike, as proven by the Government of Malaysia Sukuk issue," she adds. "Apart from tapping the existing funds, these Islamic issues have helped to deepen the market by unlocking an additional investor base - the international Islamic funds."

Market sources claim that other Islamic states are actively exploring a similar Sukuk issue.

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