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First China CMBS unlikely to start a dynasty

The current size of China’s real estate market, let alone its growth potential, is enough to whet the appetite of any CMBS banker. So when Citigroup Global Markets Asia and Macquarie Bank issued Dynasty Assets (Holdings)’ $145 million series 2006-1 secured floating rate notes in October, the first CMBS issue backed by mainland Chinese properties, there was reason for all banks to cheer. A closer look at the transaction however, gives cause for a more sober assessment of the potential of the market.

Euromoney Liquid real estate March 2007 

» at a glance
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Deal: Dynasty Assets Holdings CMBS
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Amount: $145 million
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Lead managers: Citigroup, Macquarie

The deal was originated by Macquarie Wanda Real Estate Fund, which was seeking to refinance debt secured on a portfolio of nine commercial developments. The commercial mortgage-backed securities were issued at 80 basis points over three-month Libor, with interest payable quarterly, a bullet repayment on an expected maturity of July 2009 and a final legal maturity of June 2012. Moody’s and S&P rated the notes A2 and A- respectively.

The transaction was helped by the quality of the tenant mix within the nine retail malls. With just 27 tenants in the entire portfolio, two blue chip anchor tenants, Malaysian retailer Parkson and Wal-Mart, accounted for more than 60% of total retail income.

The deal was also helped by low leverage – 31.5% loan to value and five times coverage on interest. In addition to onshore security represented by registered first charge mortgages over 97% of the portfolio, an extra layer of security offshore was added by pledges over the shares of the borrower and the offshore property holding companies.

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