Paliburg Holdings Commercial Plaza Securitisation Ltd. has completed the first commercial mortgage backed securities issue in Hong Kong this year.
The deal closed last week with HK$1.4 billion raised through the issue. The deal was first announced in February with Societe Generale acting as sole arranger with Ka Wah Capital joining as a co-lead manager.
The HK$1.247 billion issue is comprised of a series of floating- and fixed-rate notes rated Aaa down to Ba3 by Moody's Investors Service, plus a series of unrated notes worth HK$153 million. The funding levels, ranging from 80 basis points to 260 bps over the three-month Hibor. The collateral backing the offering is two Hong Kong properties - Kowloon City Plaza and Paliburg Plaza. The issue closed last Sept. 29 with 90% sold. SG was expected to hold a share of the issue for strategic and investment purposes.
The deal not only marks the first time a Hong Kong commercial mortgage-backed securitization had ratings of Baa3 and Ba3, but was also the first time an unrated mezzanine class has appeared from Hong Kong. It was the need to structure and sell those tranches that caused the delay from the February announcement of the deal, sources said.
For Paliburg, the deal was vital because the company in September 1999 had around HK$5 billion in debt, trimmed from HK $13 billion at the end of fiscal-year 1998 through asset sales and disposal proceedings.
"This securitization represents Paliburg's maiden securitization issue and a major step forward in Paliburg's debt restructuring," said Lo Yuk Sui, chairman and managing director at Paliburg.
"Compared to a corporate loan or bond secured against the properties, we achieved a more cost effective funding exercise via the issuance of rated securities," said Michael Leemputte, managing director and head of financial engineering, Asia-Pacific, for Societe Generale.
The Aaa-, Aa- and A-rated tranches met with strong demand from international banks and insurance companies in the region. SG did not provide a swap for the issue but some investors are believed to have swapped to U.S. dollars to remove the foreign-exchange risk.
The lower rated tranches were sold to domestic banks and funds that were drawn in by the attractive spread on offer and the conservative valuations of the properties, which have of around 35%, sources said. This compares with around 60% for commercial properties in Hong Kong, said an official at the lead manager.
