Sanwa Bank kicked off Japan's long-awaited residential mortgage market with the launch of a pioneering 50 billion ($407 million) MBS arranged by Bear Stearns.

Pricing had not been finalized by press time, but domestic investors reportedly bought the bulk of the issue. Excess liquidity, rather than strong interest in the transaction itself, mostly drove domestic demand, sources said.

Many domestic investors said they were actually averse to buying mortgage-backeds for the first time. But "ABS issuance in Japan has slowed recently and investors are rich in cash," explained one investor in Tokyo.

The issue is comprised of four triple-A rated, class A tranches with spreads ranging from 45 to 75 basis points over yen Libor, and a mezzanine piece priced at 200 basis points over yen swap. The average lives of the securities range from 1.9 to 11.2 years.

Moody's Investors Service and Fitch IBCA rated the transaction, which is being marketed in Japan, Europe and the U.S., as a Rule 144(a) deal.

Successful completion of the Sanwa deal will be good news for Bear Stearns, whose earlier attempts to launch Japan's first MBS in February failed after investors expressed doubts about the strength of the originator, Tokyo Sowa Bank (ASRI 4/5/99, p.11 and 4/19/99, p.8).

It is also positive for ABS bankers in Japan, who have been closely watching how the deal is received. As the first Japanese residential MBS, Sanwa's deal is key to paving the way for similar transactions and unlocking the huge potential for the domestic mortgage-backed market.

The launch of Sanwa's MBS comes on the heels of a report released by Fitch IBCA detailing criteria for rating Japanese residential mortgage-backed securities, which will see major growth, the agency said. Chief among the factors behind such growth is strong interest from potential issuers, such as regional and city banks and the Government Housing Loan Corp., which accounts for one-third of all mortgage financing in Japan.

Yet growth of the market will be tempered by several factors, including rising unemployment and consumer bankruptcies, as well as declining residential prices from the bubble economy that peaked in 1991, Fitch said. "The state of the consumer in Japan, although worsening, is still strong versus other industrialized nations, such as the U.S. and the U.K. Still, defaults are expected to rise given the current recession," the agency said. - VC

Sino-Land Breaks the Silence in HK

Hong Kong property developer Sino-Land recently began marketing its $300 million mortgage-backed transaction to investors in Hong Kong, Europe, and the U.S.

The five-year securities, to be issued by Hong Kong Turbo Mortgage Funding, are backed by a total of 21 residential and commercial properties located throughout Hong Kong.

Eighty percent of the issue has been rated triple-A and the remaining portion double-A by Moody's Investors Service and Fitch IBCA, according to Benjamin Lam, the company's finance chief. Proceeds of the issue will go to refinancing an existing asset-backed bond due to mature this August.

Deutsche Bank arranged the transaction, and pricing had not yet been determined by press time.

Sino-Land's transaction is the first mortgage-backed deal from Hong Kong since February, when Wharf Holdings launched its massive $575.2 million, single commercial mortgage securitization.

Wharf had reportedly considered doing a second CMBS via Merrill Lynch, arranger of the first transaction called Harbor City Funding (1) Ltd. but has since opted to raise funds through a secured loan arranged by Societe Generale to lower its cost of borrowing, sources said. - VC

Thailand's Landmark MBS

Thailand's first residential mortgage deal closed recently, in the form of a Bt4 billion ($107.9 million) issue backed by loans purchased from the Financial Restructuring Authority (FRA) by Lehman Brothers.

The collateral was a pool of 6,800 performing housing loans, representing the best of a pool of roughly 18,000 residential mortgages worth Bt24.6 billion, which Lehman bought for 48% of face value from the FRA last August.

The three-year securities from GT Stars were priced at 1.5% less the minimum lending rate for commercial banks and privately placed with domestic investors.

"We spent a lot of time in one-on-one investor education sessions," said Carlos Manala, Lehman's head of asset securitization in Asia. "In the end, the transaction was heavily oversubscribed and continues to attract heavy investor interest."

Lehman has been an active buyer in past FRA acutions and said it may securitize more of those assets in the future. Through its Thai subsidiary, the firm bought distressed business loans for Bt457 million in March and Bt1.2 billion in December.

"We continue to seek alternative ways to provide liquidity to all sorts of illiquid assets in Asia [and] are committed to Thailand as a financier, purchaser and securitizer of all different assets," said Brian Prince, head of the principal transactions group in Asia. - VC

OUB CBO Emerges

Singapore's Overseas Union Bank recently closed its second collateralized bond obligation (CBO) arranged by Bear Stearns.

The $302 million CBO, issued by OUB Sovereign Emerging Markets CBO II Ltd., is backed by a portfolio of U.S. dollar-denominated sovereign and quasi-sovereign bond issues from 29 countries in Asia, Latin America and emerging Europe. OUB Asset Management is the collateral manager. Moody's Investors Service and Standard & Poor's rated the transaction.

"Given the recent recovery in emerging markets, we had good demand for the subordinated and mezzanine notes since they offered good relative vlaue and fit in with the improved long-term outlook of all bond markets," said an official at Bear Stearns. "The hard part was selling the senior notes, since they were not wrapped like last time," he added. Bear Stearns also arranged the first CBO, which closed last June (ASRI 7/27/98, p.11).

The bulk of the issue was placed in the U.S. and Europe, while Asian investors bought the rest, the official said.

Three classes of notes were issued in six tranches, ranging from an unrated junior class priced at 15% to a triple-A rated, class A-1 piece priced at 80 basis points over Libor. - VC

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