Cagamas, Malaysia’s state-controlled secondary mortgage agency, has sent out RFPs for a deal backed by loans to small and medium sized entities. The RFP makes no mention of potential deal size or timing, only the assets involved, with bids due in mid-February, according to bankers familiar with the situation.
It unclear how many banks have been invited to pitch. Of the international banks, though, it seems a fair assumption that houses with Malaysian deal execution pedigrees – Deutsche Bank, HSBC, Nomura Securities and Standard Chartered – will be in the frame.
Meanwhile, Cagamas has still not decided what firm will arrange its Islamic MBS – a first for the Malaysian market. The agency invited proposals in November, with a decision expected late last year or the first week in January at the latest.
Despite the delay, one source reported last week that Cagamas has not abandoned the idea of an Islamic deal, but is still discussing potential structures with a number of banks.
Cagamas completed its debut securitization in October, a M$1.6 billion ($421.1 million) MBS that was a blowout with local and foreign investors (see ASR, 10/11/04). Boutique firm Bumiwerks Capital Management arranged the transaction, Aseambankers and Commerce International Merchant Bankers coordinated the domestic placement and Standard Chartered handed the sale to offshore investors.
Elsewhere in Malaysia, two transactions closed recently: a M$500 million auto loan deal by consumer finance company AmFinance, and a M$150 million Islamic CMBS by property developer Talam Corp.
Not surprisingly, AmMerchant Bank arranged AmFinance’s deal, issued out of the Cepat Assets SPV. Both are wholly owned subsidiaries of Arab-Malaysian Banking Group. The offering featured five tranches, all rated triple-A by Ratings Agency Malaysia, with legal maturities of one to five years, and expected average lives of between 1.1-years to 3.7-years. Credit enhancement comes primarily through 8% overcollateralization and the loans have a weighted average seasoning of 29.5 months.
The five-year tranche pays a 5.60% coupon, around 200 basis points over government paper. The deal was fully subscribed and attracted interest from corporate investors, fund managers and insurance companies, sources said.
Malaysian International Merchant Bankers arranged Talam Corp’s deal, issued out of the Ample Zone SPV, involving the sale of four commercial buildings in Kuala Lumpur worth M$236 million.
Under the terms of the transaction, the SPV entered into a rental agreement with the sellers of the properties (four Talam subsidiaries), whereby it leases back the assets for the seven-year life of the deal. At closing, the SPV issued Sukuk Iljarah paper backed by lease revenues.
Talam says the exercise will help it reduce borrowings of M$103.4 million and achieve annual interest rate savings of M$5.4 million.
The deal comprised three classes of notes. The M$50 million A-tranche, rated AAA’ by Malaysian Rating Corp., was divided into paper with one to six year maturities, offering coupons of between 5.00% and 6.85%. The AA’ rated M$25 million B-piece has maturities of between one through seven years and coupons of 5.85% to 7.8%, while the M$75 million seven-year C-tranche has a nominal coupon of 9.30% and will be retained by Talam.
Pricing levels on both Talam and AmFinance’s transactions aroused interest, particularly when compared to Cagamas’ first foray last October. Spreads on that deal were 18 basis points over government paper for the three year tranche, 26 basis points over for five year paper, 38 basis points over for seven and 45 basis points over for 10-year notes.
Those levels were significantly inside what had been achieved on previous Malaysian offerings. Wide pricing for ABS and MBS paper had been seen as something as a hindrance to market development, but bankers involved on Cagamas’ MBS confidently heralded the issuer for attracting new investors and establishing a new benchmark for Malaysian securitization that would encourage other issuers to follow.
However, the Talam and AmFinance deals priced way outside Cagamas, and are more comparable to the deals that went before. This suggests local investors were attracted more by Cagamas’ status as a government entity rather than any sudden increased desire for structured paper.
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