Asia-Pacific CDO issuance to rise this year, says Fitch

There is likely to be an increase in the issuance of collateralised debt obligation (CDO) issuance in the Asia-Pacific region in 2006, rating agency Fitch said in a new report.

"Levels and types of issuance will vary from country to country and the market will continue to bring a mixture of cross-border and domestic transactions,” said Rachel Hardee, head of structured credit for the Asia-Pacific region, in the report.

"Privately placed single-tranche synthetic transactions are likely to remain popular and there is evident interest in the gamut of synthetic CDO product types and increasing interest in the managed product,” the report author said.

Taiwan has continued to experience a high level of activity in the first quarter of 2006, said the report, as transactions originated in response to the bond fund problem continue to dominate the landscape. After its inaugural CDO in 2005, China remains an area of interest for all market constituents and Fitch expects further CDOs from China during the year (See: Fitch expects growing Chinese CDO issuance).

Following an increase in new issuance in 2005, Japan expects another year of growth in 2006 and anticipates repackaging activity using portfolios held on sponsor banks balance sheets. A greater level of activity is likely in Australia due to increased investor demand, particularly at the wholesale level, with a continuation of both high-grade and high-yield CDO issuance expected using a mix of static and managed transactions, Fitch said.

The Asia-Pacific CDO market continued to build in momentum in 2005 with private synthetic transactions representing a steady stream of issuance. Many deals were inaugural issues and experimental in nature, said Fitch.

As well as the pilot securitisation programme in China that saw the issuance of China Development Bank's collateralised loan obligation (CLO), China’s first CDO, Fitch rated the inaugural deals of Standard Chartered in Singapore – Start CLO – and China Development Industrial Bank's CLO in Taiwan, a cashflow primary balance sheet CLO.

Taiwan saw a flood of structured credit issuance in the latter part of the year, which reflected a repackaging of structured notes by way of collateralised bond obligations or asset-backed commercial paper, said Fitch. Meanwhile, Korea witnessed a high level of CDO activity that was cash and domestic in nature.