Japan's asset-backed market, one of the fastest growing in the world, is poised for yet another year of runaway growth in 2000.
The volume of deals to be launched before the fiscal year-end in March is noticeably smaller compared to the same period last year, when many finance and leasing companies issued ABS for the first time, according to ratings agencies in Tokyo.
However, this year will see many more deals backed by newer assets such as mortgages and non-performing loans, offsetting any decrease in activity by traditional issuers.
Commercial mortgage-backed deals will drive much of this year's growth, Moody's Investors Service predicted. The agency expects that Japanese CMBS issuance will be between $4 billion and $5 billion this year. In 1999, CMBS issuance was about $1.5 billion, said Frederic Drevon, managing director of Asia Pacific structured finance in Hong Kong.
"Some mature assets like auto loans and leases are not expected to grow significantly, because such companies are already securitizing. We expect most growth will come from other assets, like residential and commercial mortgages," Drevon said.
The agency will rate as much as 10 CMBS deals before the end of March, as opposed to about six deals for all of last year, he added.
That is not surprising, as news of impending CMBS deals abound in Tokyo, where a growing number of companies and financial institutions are eagerly announcing plans to securitize their head offices and other real estate assets.
For example, Sumitomo Realty & Development Co. is securitizing its landmark office tower in Shinjuku, Tokyo, in a deal reportedly worth 100 billion ($944.4 million). That deal will likely be issued before the end of March.
The market has also been abuzz with rumors of non-performing loans-backed deals.
After Morgan Stanley Dean Witter securitized non-performing real estate loans for the first time in December, many banks are reportedly looking to ride on its success by doing similar deals.
"There are a lot of banks looking to use the technology that Morgan Stanley has developed. Any global institution with a real estate or securitization presence in Japan is going to be interested [in securitizing NPLs]," commented one ABS head in Tokyo.
One sign that could portend more NPL-backed deals is that investors are showing more demand for non-performing assets.
Competition has increased at distressed asset sales, where the number of buyers has grown and bid ranges have narrowed. For example, Merrill Lynch is said to have bought a sizable portfolio of assets from the Cooperative Credit Purchasing Co., a government body that acquires bad loans from Tokyo city banks and holds regular auctions.
Securitization is one likely exit strategy that Merrill and other investors are considering, said one banker. "There's lots of people looking for these assets, but the question is what are they going to do once they purchase them. If your return on equity target is very high, it makes sense to lever it through securitization," he explained.
