South-east Asian securitization goes with regulatory flow
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.