Fitch sees rise in Asian securitisation in 2008

Fitch Ratings expects overall issuance in the non-Japan Asian cross-border securitisation market to rise after pricing conditions stablise in 2008 and following stagnant growth in 2007, the agency said in a report issued on February 4.

In all, 16 cross-border transactions with a total issuance of $5.6 billion closed in 2007, the same number as was achieved in 2006. The agency did not give a forecast for 2008 issuance. Syndicated bank loans or corporate debts, which provide abundant liquidity, have always been competitors to securitisation in some Asian countries and this will remain the case, it said.

South Korea will continue to be the leader in non-Japan Asian cross-border issuances in 2008, and the market will undoubtedly see transactions backed by different asset types, Fitch said. At the same time, the agency believes residential mortgage-backed securities (RMBS) and credit card receivable asset-backed securities (ABS) will continue to be the main asset types securitised there.

A few RMBS transactions, originated by repeat issuers and first-time issuers, are currently on hold pending further market stabilisation. Fitch believes the RMBS issuer base will become more diversified in the future and traditional ABS issuers, such as Samsung Card, LG Card and Hyundai Capital, will continue to tap into the cross-border securitisation market.

Transactions in Singapore, which have been focused on commercial mortgage-backed securities (CMBS) and residential receivables, are forecast to slow, the agency said. Real estate investment trusts (Reits) have witnessed rapid growth and have been the main issuers of CMBS in the island state. This is because more debt financing may go into the unsecured loan market, which provides competitive pricing without the structural complexity associated with a securitisation, Fitch said.

In Thailand, which has traditionally been domestically focused, the long awaited state-owned Government Housing Bank’s RMBS transaction is expected in 2008, which will mark the country’s first cross border transaction, said Fitch. This issue, which has been delayed for sometime, had an initial plan to offer two tranches of notes, one to international investors and the other to domestic investors.

Other potential transactions may include those backed by personal loan receivables, an asset type that has experienced strong growth over the past few years due to the less stringent requirements on customer credit quality, as compared with credit card products. Only three transactions closed in 2007, bringing the total number of issues to 15 and 54.2 billion baht ($1.7 billion) since 2002.

Taiwan will also remain domestically focused, but issuers are forecast to employ diversified assets this year, said Fitch. Transactions backed by mortgage loans, consumer loans and small to medium size enterprise loans, may well become the deals of choice. The strength of the commercial property market enticed direct investment from both local and foreign investors, and resulted in soaring property prices in 2007. Commercial property owners may find it more attractive – in terms of price and execution – to liquidate the properties via direct sales rather than via the issuance of Reits or Reats (real estate asset trusts). Thus transaction flows of Reits and Reats, as seen in 2007, may decline as a result.

Uncertainties in Indonesia’s legal and tax systems, high transaction costs, sufficient bank liquidity and a lack of local expertise have proven major stumbling blocks to the development of a robust securitisation environment. While little has changed in these areas, securitisation activity will resume slowly in the coming year, Fitch said. Since the last batch of securitisation transactions closed in 1997, other than the one-off IndoCoal Exports transaction in 2005, the securitisation market in Indonesia has effectively been on hold.

However, the Secondary Mortgage Facility (SMF) was established by the Indonesian government in 2006 to act as a mortgage purchaser, similar to Fannie Mae in the US, buying eligible mortgages from financial institutions and issuing bonds backed by these assets. A prospective transaction, originated by SMF, may surface using assets purchased from Bank Tagungan Negara (BTN), which finances two-thirds of lower and middle income earners in Indonesia.

In China, securitisation laws are evolving and a new batch of securitisations is on the way, Fitch said. A few domestic transactions have received approval under the second pilot programme and a few more are under consideration. But as for cross-border securitisation issuance, existing rules which prohibits offshore entities from directly holding local assets are being tightened.

Foreign entities seeking to directly hold local assets must have the purchase approved on a case-by-case basis. Three domestic collateralised loan obligations (CLOs) were completed during the past year, originated by Shanghai Pudong Development Bank, Industrial and Commercial Bank of China (ICBC), and Industrial Bank of Shanghai. A CLO originated by China Development Bank was abandoned during the marketing stage in June 2007, due to a surge in yield and deteriorating pricing conditions. This CLO is expected to be relaunched in the next few months.