Details emerged last week regarding an innovative Islamic infrastructure securitization from Malaysia's Penang Bridge Sdn Bhd.
The company in March will launch a M$695 million ($186.2 million) deal that will finance the widening of a 13.5 kilometer toll bridge linking the island of Penang in North Malaysia to the mainland. Commerce Merchant International Bankers is the appointed arranger.
Penang Bridge, a wholly owned subsidiary of the state-controlled construction company UEM Builders, is responsible for the operation of the bridge - including collecting tolls - under a 25-year contract with the government. Widening the bridge will increase the amount of traffic and the company's revenues.
While Islamic ABS became a feature of the Malaysian capital markets in 2005, this will be the first issuance of zero-coupon Sukuk Istisna bonds. Under Islamic law, the Istisna concept involves a sale contract for an asset to be developed, with investors redeemed by a pre-agreed share of the profits only when the project has been completed. Istisna paper is nontradable.
Penang Bridge's offering will feature six tranches, rated Aa2 by Rating Agency Malaysia, with maturities stretching from eight to 13 years. Market whispers indicate pricing will range from 5.95% on the eight-year piece to 6.8% for the 13-year sukuk.
At press time, indicative yields for Malaysian government securities were 3.987% for eight years and 4.404% for 15 years.
While the spreads over MGS look fairly wide, they are in line with those achieved by corporate issuers of Islamic and conventional ABS transactions.
"For larger projects stretching over long periods of time, it is not always easy to access bank loans. Securitization allows borrowers to raise large amounts of capital for maturities matching the project completion time," said one Kuala Lumpur, Malaysia-based banker.
Also in Malaysia, the hotel and property developer Landmarks Bhd is rumored to be contemplating a securitization program now that its planned listing of a real estate investment trust has been rejected by the Securities Commission.
Landmarks wanted to sell 56.9% of its ownership rights to shop lots and car parking space in the Sungei Wan Plaza shopping mall in Kuala Lumpur to a newly established entity, Sungei Wan REIT. The move was part of a restructuring designed to free capital for new projects. However, Malaysia's financial services regulator rejected the proposal over concerns regarding the growth prospects of the REIT. SC officials said a significant number of shop lots to be included in the trust were in uncompetitive locations in the mall, which would negatively impact the REIT's yield potential.
Though Landmarks seems certain to appeal the decision, bankers say the company is seriously looking at other ways to unlock the value of the assets, with a commercial mortgage-backed offering a strong possibility.
In other news, following a record year in 2005, Japan - Asia's largest ABS market - has started 2006 in the same fashion. According to Merrill Lynch's structured finance research team, known issuance for January hit 600 billion ($5.1 billion).
Bank of Tokyo Mitsubishi UFJ accounted for one-third of the total with a 200 billion ($1.69 billion) residential mortgage-backed deal, while another 25% came from the latest 148 million ($1.25 billion) MBS issued by Government Housing Lending Corp.
Of the more interesting upcoming deals, much attention will focus on the 100 billion ($845.8 million) repackaging of subordinated loans by Shinkin Central Bank. It is the representative body for Japan's Shinkin banks, which almost exclusively lend funds to small and medium-sized enterprises. The program is designed to boost SCB's capital adequacy ratio.
Daiwa Securities SMBC will act as arranger on the deal, likely to be completed this month. As SCB is not allowed to issue subordinated debt directly, Daiwa will extend 100 billion of sub-loans to SCB, the rights to which will be transferred to the SCB Securitization Company special purpose vehicle. The SPV will subsequently issue bonds backed by loan claims.
Daiwa will be joined by Nomura Securities and Mizuho Securities in selling the notes to institutional investors.
Meanwhile, the Local Governments Union in the Philippines has been linked to a PHP17 billion ($328.3 billion) offering. However, it remains to be seen if the latest rumored transaction will fall by the wayside as so many others have in recent times. No deals have been completed in the Philippines since the Asian financial crisis in 1997.
According to local media, PHP17 billion of state funding for local governments dating back to 2000-2001 has been denied them by the Senate. This, says the LGU, has seriously hindered the ability of local authorities to deliver basic services to communities.
The nation's Supreme Court last year sided with the LGU, deeming the Senate's actions unconstitutional. Reports say President Gloria Macapagal Arroyo has ordered the money to be released to the LGU through a securitization scheme.
However, with Arroyo's leadership coming under almost continuous attack, there must be questions on whether she can get enough support for the program to go ahead.
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