Thailand’s first publicly rated mortgage-backed securities issue is the latest in a series of securitizations in south-east Asia, suggesting that the region may be developing an active market in the asset class.
The Bt7.17 billion ($177 million) transaction, named GT Stars II, was executed by Lehman Brothers as part of the disposal of a distressed loan portfolio that the bank bought from the Financial Restructuring Agency in 1998 and DBS Thai Danu Bank in 2000. The deal in late July was also the first publicly rated securitization of distressed assets in Thailand, although Lehman completed a similar issue, GT Stars I, in 1999 that was privately placed and not rated.
Stars II securitized a pool of 14,818 mortgages, of which 81% are non-performing, 16% restructured, and 3% performing. The transaction also contained a Bt2.5 billion tranche that was structured as a loan to cater for one institutional investor. The five-year bonds were priced to pay investors a floating rate of 2.15% below the Thai minimum lending rate of 7.1%.
Strong demand for the deal is largely attributable to huge investor appetite for the limited quantity of high-quality investment opportunities. Banks in Thailand and the region enjoy liquidity but have few good loan or low-risk investment opportunities.
Carlos Manalac, managing director at Lehman’s global structured finance group, says the Stars II transaction was driven by demand from investors that bought the Stars I issue in 1999: “Despite having a maturity of seven years Stars I was all paid off in only 17 months. Investors were pleased with it and were looking for something similar.”
Securitization deals from Asia have increased dramatically in the past two years, with most volume and growth coming from Japan and Korea. Issuance in Asia ex-Japan in 2001 was $2.74 billion, 67% greater than in 2000, says Moody’s. In south-east Asia volumes increased from $864.46 million to $1.012 billion over the same period with most deals from Singapore.
Michael Ye, managing director of international structured finance at Moody’s, says financial institutions and corporates in the region are turning their attention towards securitization. “For banks, the capital release benefits of securitization have been a major draw,” says Ye. “Other financial institutions have turned to securitization as an alternative funding source, and real estate companies have also begun to recognize its benefits in balance sheet management.”
In Singapore regulatory pressure has been a significant growth factor. “Expect to see a slew of property-related transactions, as requirements from MAS [the Monetary Authority of Singapore] for banks to divest their non-core assets will make securitization an attractive option to avoid further depressing property prices,” says Ye.
Regulation seems to be the key to the different levels of the market’s development in the region. Recognizing this, and the potential usefulness of securitization for domestic capital markets, regulators and governments in Malaysia, the Philippines, Singapore, Thailand and Taiwan, are looking to improve guidelines to facilitate market growth. “The Asian crisis spurred governments to think about how best to manage and encourage the growth of their domestic capital markets,” says Eddie Wong, managing director and chairman of the management committee of HVB in Singapore. “Different governments are moving at different speeds. There can be no big-bang change that will work because things always need to be ironed out over time, but regulators do want to be flexible and encouraging.”
