Securitisations resurface in Singapore

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#1
from Reuters: http://sg.finance.yahoo.com/news/securit...28589.html

Interesting to see the kind of ABS being introduced, in particular Courts' ones which are backed using installment-loans.


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HONG KONG, Oct 18 (IFR) - Two Singapore firms completed private placements of asset-backed securities this week in a level of activity for structured bonds not seen since the 2008 financial crisis.
"People are finally warming up again to securitisation, and we expect the market-opening trades to have follow-on trades," said Peeyush Pallav, vice president, structured debt solutions at DBS Bank.
Issuers, too, are looking at securitisation to diversify their sources of funding as banks run up against single-borrower limits and as they review their risk-weighted assets amid tighter banking regulations.
"In 2006, there was a lot of demand being driven by structured investment vehicles and conduits. Now, it is more driven by the fact that you must have some secured bonds and structured debt in your capital structure in addition to the usual loans and equity for funding diversification," Pallav said.
The asset-backed deals today also are being structured differently than in their last incarnation. Bankers are now creating the transactions with domestic investors in mind, rather than those offshore, and selling them in local currencies instead of US dollars.
Another change is these deals are being placed privately with investors, thus shielding them from mark-to-market risks.
DEAL SURGE
The proof came in the transactions last week of TG Master, a Singapore property developer, and Courts, a furniture and consumer goods retailer.
TG Master sold senior secured bonds through a special-purpose vehicle called Orchis Capital. The offering, denominated in Singapore dollars, is legally due in March 2018, but has an expected maturity of March 2017.
The bonds are backed against proceeds from presales of units in Skies Miltonia Property, a high-end project being developed in Singapore's Yishun Avenue, featuring 420 residential condominiums and two commercial units. DBS was the sole lead manager on the transaction.
Courts's transaction involved two jurisdictions as it was backed against pools of instalment loan receivables originated in Malaysia and Singapore. The asset-backed bond is the first in Asia ex-Japan to involve more than one country or currency. HSBC managed and structured the deal.
The weighted-average life for both deals is three years, while the legal maturity for each is five years.
MORE AHEAD
The success of both transactions has bankers in Singapore betting on a revival of the securitisation market and suggesting more deals are in the works.
However, not all issuers may want or need to do securitisations. Courts, for instance, may have found it cheaper to sell asset-backed securities than unsecured bonds, but that may not be true for others.
The retailer recently paid 4.75%, or 412.2bp over the swap offer rate, for an unsecured three-year S$125m bond.
The pricing details of the asset-backed deals were not made public as they were both private placements, but bankers suggested Courts saved significantly in issuing securitised notes.
"Asset securitisation against our credit receivables is a compatible model to our business needs," said Kee Kim Eng, executive director and group CFO, Courts Asia.
"Our ambition to grow as a business means we will potentially have a bigger-sized credit receivables book to secure in exchange for a higher level of borrowings," Kee said.
Still, a banker not involved in the deal suggested that, as blue-chip developers from Singapore paid only 100bp-150bp over the Singapore benchmark rate on unsecured paper, they were unlikely to seek securitisations.
However, even blue-chip developers may change their minds as banks start to hit single-borrower limits.
"Every condominium construction since the abolishment of the deferred payment scheme in Singapore has been funded through progress payments, land loans, developers' equity and construction loans," Pallav said.
Even though most local investors are still more comfortable buying unsecured bonds, some have warmed up to the fact that asset-backed securities can offer better returns for their rating, and they like that the bonds include collateral that is also in their home market, bankers have said. (Reporting By Neha d'Silva; Editing by Christopher Langner and Abby Schultz)
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#2
Yishun condos can be called 'high-end' MEH? BS the ang mohs??

"TG Master sold senior secured bonds through a special-purpose vehicle called Orchis Capital. The offering, denominated in Singapore dollars, is legally due in March 2018, but has an expected maturity of March 2017.
The bonds are backed against proceeds from presales of units in Skies Miltonia Property, a high-end project being developed in Singapore's Yishun Avenue, featuring 420 residential condominiums and two commercial units. DBS was the sole lead manager on the transaction."
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
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#3
Securitisation is not evil. Misprice is.

Was the tulip the evil during the tulip mania? If someone was paying a lot of money for a tulip, someone had to be hurt some time.

To blame subprime on securitisation is a populist idea without much thinking behind.

But it does show that DBS does not like the risk in construction loan. It wants to shift the risk out of its book to some private investors.
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#4
(19-10-2013, 10:15 AM)freedom Wrote: Securitisation is not evil. Misprice is.

Was the tulip the evil during the tulip mania? If someone was paying a lot of money for a tulip, someone had to be hurt some time.

To blame subprime on securitisation is a populist idea without much thinking behind.

But it does show that DBS does not like the risk in construction loan. It wants to shift the risk out of its book to some private investors.

Nicely said.
Since i am not a HNWI, i do not have access to nor the knowledge of these securitized products. But with the subprime crisis only 5years ago and still 'fresh' on most investors' minds, my instinctive reaction is also to reject such news with negativity. On 2nd thoughts, it would be interesting to know more about these MBS as such 'still unloved' asset classes might have some mispricings.

On the issue of DBS trying to shift their risk off their loan portfolio, the article only suggest that DBS is the manager/arranger of the deal, rather than being the issuer. Of course, there could be other information (besides this article) that suggest otherwise.
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#5
Think the other way. If DBS really likes it, it will not give it to the private investors. DBS is unlikely to do national services for private investors.

The development company probably comes to DBS for a normal construction loan. Probably, DBS does not like it at the given risk and interest rate as a commercial bank deal. Thus, DBS tries to arrange it as an ABS as an investment bank deal. My guess only.

That's one of the great advantage for cross-selling, for which pure investment banks or commercial banks do not enjoy.
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#6
(19-10-2013, 11:55 AM)freedom Wrote: Think the other way. If DBS really likes it, it will not give it to the private investors. DBS is unlikely to do national services for private investors.

The development company probably comes to DBS for a normal construction loan. Probably, DBS does not like it at the given risk and interest rate as a commercial bank deal. Thus, DBS tries to arrange it as an ABS as an investment bank deal. My guess only.

That's one of the great advantage for cross-selling, for which pure investment banks or commercial banks do not enjoy.

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#7
Update: Sky Miltonia September 2013
Cumulative Units Sold to-date: 394
Median Price ($psf) in the Month: 1027
Units sold in the month: 2
Cumulative Units Launched but Unsold: 26
Total Number of Units: 420

Almost fully sold. Most probably the bank has too many property loans.....
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#8
(19-10-2013, 04:53 PM)Behappyalways Wrote: Update: Sky Miltonia September 2013
Cumulative Units Sold to-date: 394
Median Price ($psf) in the Month: 1027
Units sold in the month: 2
Cumulative Units Launched but Unsold: 26
Total Number of Units: 420

Almost fully sold. Most probably the bank has too many property loans.....

Yes I believe this is probably it. DBS has too many property loans from small property developers. This is often the case as smaller property developers are unable to access the equity and debt markets for funds in Singapore and we don't have a developed private equity market.

We must remember that the risk and returns of any trade are different for all market participants and everyone evaluates their risk and return on a whole portfolio basis and not on any individual trade alone.

Take gold as an example. Some gold may help us diversify and protect against inflation and unexpected events thus the risk return tradeoff is attractive. However if you hold your whole portfolio in gold (just an extreme case to illustrate point) then the risk return tradeoff is no longer attractive.

Another example would be if I had SIA in my portfolio, buying Sem Marine would offer me the added return of helping me to diversify away the risk of higher oil prices. Therefore, I might be willing to pay a slightly higher price than someone who does not derive such benefit.

In every trade, it is not necessarily that there must be one winner and one loser. It is possible that both parties meet their objective and the utility of all participants is maximised.

I believe securitisation is a good thing in the sense that it helps to match the supply and demand for capital. It is like a tool. It can be good or bad depending on the users.
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#9
Dbs just want to earn fee based income for creating structured products. Take a cut from multiple parties.

When project 50-70% sold, developers (and their bankers) home safe. Unless project overrun jialat jialat.

Since now no deferred payment scheme, the risk of sold condos already pass to the buyers and their banks. So don't think dbs scared of developers loans go bad.

Unless there is a big systemic crash in property market.
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
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#10
Is it safe to use just one asset to securitise?

How is the interest rate for such an security, or does it work just like a bond?
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