Activity in Taiwan could soon start picking up after a slow start to 2005, according to sources in Taipei. Cathay Financial - the country's biggest financial services group with interests in banking, real estate and insurance - is mulling its first entry to the ABS market as an issuer.
Cathay recently received approval to establish a real estate investment trust and looks likely to issue NT$10 billion ($318.5 million) via CMBS transactions, which would help finance purchasing properties to go in the REIT.
The group is looking at new ways to boost revenues after posting first quarter net income of NT$4.79 billion, down significantly from the NT$12 billion it recorded in the same period in 2004. As Taiwan's stock market continues to under perform, Cathay's insurance subsidiaries see REITs offering better returns, as they have done for their peers in Singapore.
According to ABS bankers in Taipei, Cathay has not approached foreign arrangers to submit proposals for the deal, adding that it is unclear whether it intends to solely use its subsidiary Cathay Securities as lead manager, hoping that will not be the case. With Cathay's assets including NT$100 billion of real estate, NT$450 billion of home loans and NT$60 billion in credit card receivables, its scope for securitization is promising.
Meanwhile, another Taiwanese entity, China Development Industrial Bank - whose chief business is providing medium-to-long term funding for companies - is reportedly working with Calyon Securities on a CLO. Details on size and timing have not emerged, although the choice of Calyon as arranger seems logical, as the firm has carved a niche advising on Taiwanese CLOs.
Calyon advised on a NT$4.9 billion offering by Bank Sinopac in August 2004, and NT$5.35 billion issue last December from International Commercial Bank of China. The triple-A tranches on both deals priced at 40 basis points over the three-month commercial paper index.
Staying in Taiwan, despite delays in getting regulatory approval for a NT$10 billion credit card deal arranged by ABN AMRO (see ASR 4/25/05), Taishin International Bank is making plans for another credit card securitization. Sources say the bank met with a select number of foreign banks last week for a completely new deal - also totaling NT$10 billion. This will not affect Taishin's hopes to push through the ABN AMRO-led offering as soon as the Bureau of Monetary Affairs gives the go-ahead.
In Korea, Merrill Lynch is believed to be working on a second ABS deal with the troubled credit card company, LG Card. Although LG Card remains the country's second biggest card originator, it was one of the worst affected by the consumer finance crisis that hit in 2003, and which continues to hinder the company.
Such are LG Card's woes; it had to be rescued by creditors with a W5 trillion ($4.995 billion) bailout package last year, led by Korea Development Bank. The same creditors are now seeking to sell the company.
In fairness, LG's performance has picked up in the past year. Even so, observers may wonder why Merrill might want to involve itself with the company, especially if it continues with its strategy of being sole investor as well as arranger on the reported deal.
The bank did just that last year on a $400 million issue by LG (see ASR 8/16/04). This puzzled many, but others saw it as a smart move, suggesting LG would have had no option but to pay Merrill sizeable fees. It was also talked that there was massive upside for Merrill in acquiring the equity portion of the deal if the assets outperformed expectations.
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