Korea, Hong Kong and Singapore will be the major markets for securitization in non-Japan Asia 2001, but issuance from other Asian countries including Malaysia and the Philippines is also likely, says a recent report from Moody's Investors Service.

In Malaysia the securities commission may introduce securitization regulations in the near future. "Our understanding is that the regulator may have already put out draft regulations," said Min Ye, managing director at Moody's in Hong Kong. "The legal system is similar to the U.K., so there may be whole business securitizations. Singapore and Hong Kong also have legal systems similar to the U.K., so whole business securitizations are possible here."

Ye explained that transactions like the tenanted tavern deals in the U.K. could happen in the region. Malaysia has an abundance of natural resources, so there might also be crossborder securitizations of gas or oil.

In the Philippines, in November 2000, a presidential order was given to various government departments to develop the regulatory and administrative regime for securitization. However, Ye said: "Nothing has really been approved by the Central Bank in the Philippines. The Central Bankers have been cautious about securitization, although the private sector has been pushing for it. Given recent political events, I am not sure if and when the initiative will be carried out."

Ye said that likely assets for crossborder securitizations would be international telephone settlement receivables and workers' remittances. The foreign currency ceiling rating of Indonesia, B3, is low for securitizations, but Ye added, "People are going to try and pierce the foreign currency ceiling, for example, by using an offshore reserve fund, or by involving supra-nationals like the International Finance Corporation, Asian Development Bank, or World Bank, to acquire their preferred creditor status.

"It is also possible to be insured for political risks by properly rated insurance companies or government agencies, such as the Overseas Private Investment Corporation in the U.S." Moody's also has a local currency guideline for Indonesia at Ba1. However, Ye explains that, "If the fundamentals, both legal, financial and structural, support a higher rating, an investment-grade rating for securitizations may also be possible."

In Taiwan, private and public sector entities including financial institutions, the corporate sector and asset management companies, have shown interest in securitization, which Ye said the Taiwanese government has acknowledged. He added: "In the Philippines and Taiwan there are civil law jurisdictions. If there is a will from the government, a securitization market could be created by passing new laws. I think the pace of change and market opening would be pretty quick if the government is willing to act, just like the Korean government."

Synthetic securitization is a more immediate possibility in Taiwan. "Even though the current regulatory system does not allow securitization, an offshore synthetic transaction may be possible because it doesn't need a local special purpose vehicle and local asset transfers," says Ye. "As the bonds are issued by offshore entities, it might not even attract the withholding tax."

In Indonesia plans have already been announced for an offshore deal. Indonesia has signed an export contract for 22 years to export 325 million cubic feet of gas to Singaporean conglomerate SembCorp. The deal is not expected to come to market till September. "Indonesia has an abundance of natural assets so there may be more future flow securitizations, with oil or gas, rather like in Latin American countries," said Ye. "Because of the low foreign currency ceiling (B3), offshore foreign currency denominated export receivables offer the most potential."

China offers potential for residential mortgage-backed securities, but securitization is difficult here because of the uncertain legal and regulatory system. Ye suggested that rather than traditional securitizations, new instruments could be created to allow quasi-securitizations. Bonds backed by mortgages, similar to bonds backed by commercial properties in Singapore, could allow issuers to tap a new alternative funding source and investor base.

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