When Standard Chartered established its Asian securitization team two years ago, it was difficult to see how it would fit into what was already an extremely competitive business. At that time, nearly all the issuance came out of Korea and it was not unusual to see 16 banks bidding for only a few deals.
Breaking into the Korean market, however, was not as high on the agenda of Warren Lee, StanChart's head of Asian securitization, as it was for some of his peers. "When I joined the bank two years ago, one of the attractions was that StanChart has such a strong local currency franchise," explains Lee. "Initially, we went out in pursuit of domestic securitization deals."
With deals already completed in Thailand, India, Singapore and Korea, Lee's strategy has to be seen as a success. StanChart's ex-Japan Asia franchise has grown at a time when other more established houses have scaled back their securitization effort in the region.
Lee is bullish on markets such as Thailand, a region still off the radar screen for some of his competitors: "There have been successes, the most recent being the Aeon transaction backed by hire purchase receivables. That closed in February and we are exploring other opportunities in Thailand. There is good potential in the Thai market for consumer assets such as auto loans and credit cards, especially as these companies are looking to diversify their sources of funding."
Malaysia has disappointed many bankers since securitization guidelines were introduced three years ago. With the exception of Deutsche Bank and Nomura Securities, foreign banks have not enjoyed any success. That has nothing to do with restrictions on them participating, rather the deal flow has just not been there. Lee, however, believes there is light at the end of the tunnel.
"Initially, there was some disappointment for us in Malaysia but that had much to do with IAS39 and IAS12 accounting issues, which have impacted those markets that adopt international accounting standards," says Lee. "However, we are hopeful that Malaysia is coming back on the chart. The government is really keen for the market to develop, and the regulator may introduce new guidelines for accounting objectives."
In Singapore, Lee sees more activity emerging from the property sector. StanChart has already tasted this activity, closing a progress payment deal for Centre Point Properties. Like most of his peers, Lee is optimistic about China. In fact, if market rumors are to be believed, StanChart is working on something with China Construction Bank, which would give the bank reason to be more hopeful than most. Lee would not be drawn into discussion on the CCB link, but admitted the bank is working on something.
"I remain hopeful on China, largely because of the size of the market. There is potential for some infrastructure deals, NPL transactions, CDOs and CLOs. Regulators are looking at how to develop the market, which is also a good sign. As the consumer finance market in China develops, we see good opportunities to securitize these performing assets," Lee observes.
Ironically, given how StanChart stayed away from Korean ABS when the team was started in 2002, the bank has more reason to be confident about Korea than most of its competitors. StanChart arranged a $228 million auto loan deal for Hyundai Capital last December and is working on a similar-sized transaction for the same company, which Lee expects to close in June.
With the outlook for credit card transactions - which provided the bulk of cross-border issuance in 2001 and 2002 - particularly gloomy, it is hard to be confident that volumes will return to previous levels any time soon. Lee, however, believes there are encouraging signs.
"Generally, the market in Korea has been very tough during the last 12 months, largely due to the consolidation among the consumer credit companies and the fall in consumer spending. But there are indications that the market could become more active again. The government has reduced consumption tax to promote spending, while residential mortgages continue to perform well. I see that as a great asset class. Korea First Bank has done a deal [via UBS] and may consider others in the future."
The one market that Lee is not upbeat about is Taiwan, which he sees as "very tough because it is highly competitive." Although he did not say it directly, many banks and law firms are not prepared to do business in Taiwan because the fees do not justify the amount of work needed to get deals done.
StanChart also differentiates itself by being able to self-arrange deals for its sizeable retail franchises. The bank has already self-led deals in India, and Lee admits that deals in other countries are possible.
"We are in constant dialogue with consumer banking to see if securitization is feasible from a funding or capital relief standpoint," comments Lee. "We have already done some auto loan deals in India, in June 2003, August 2003 and January 2004. We originated a portion of car loans aggregating Rs5.27 billion."
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