After a five-year absence, Hong Kong's securitization market will shortly see its first CMBS offering since late 2000. Fortune Real Estate Investment Trust launched last Thursday the HK$2.385 billion ($306.8 million) deal via Triumph Assets Ltd - a Cayman Islands registered special purpose vehicle. HSBC Securities will act as arranger. Price guidance has not been released, but the deal is expected to price and settle before the end of the month.

The transaction is collateralized by a secured loan held over 11 retail properties owned by Fortune. The properties, mainly suburban shopping malls, are scattered over Kowloon and the New Territories in Hong Kong, with a diverse range of tenants from retail, banking, food and beverage, and the services industries.

Triumph Assets will issue a mix of fixed- and floating-rate notes with a five-year expected maturity and legal final of 6.5-years. If the underlying loan is not repaid after five years, the assets will then be sold to repay investors.

The HK$1.735 billion senior notes - comprising both fixed- and floating-rate paper, with tranche size dependent on demand - are rated triple-A by Fitch Ratings and Standard & Poor's. The floating-rate HK$360 million B tranche and HK$290 million C bonds are rated double-A and single-A respectively.

According to S&P, the current LTV for the triple-A tranche, which has a debt service coverage ratio of 2.1 times, is 37.2%. Expected annual income for the properties is HK$333.9 million. Aside from subordination, additional credit support is provided by a HK$100 million liquidity facility.

The purpose of the transaction is partly to finance Fortune REIT's recent acquisition of six new properties, with the remainder coming from an equity placement. With the additional assets, Fortune now has a market capitalization of HK$7.6 billion.

Even though Fortune was listed on the Singapore stock exchange in 2003, it is effectively a Hong Kong REIT. It was established by Cheung Kong Holdings - owned by Hong Kong tycoon Li Ka Shing - to purchase properties located in the territory, with the Suntec REIT created for the same purpose for assets located in Singapore.

In fact, a Singapore listing was the only way Cheung Kong could get around the uncertain legal and regulatory climate for establishing REITs in Hong Kong - a situation that persists even now. The state-run Housing Authority was supposed to establish Hong Kong's first HK$2.7 billion REIT last December, but the deal collapsed at the last minute.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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