The Malaysian Securities Commission has released guidelines on securitization, with requirements that no other regulatory body in Asia includes. When a company applies to the Securities Commission to do a deal it must include a preliminary rating report and a legal opinion on whether true sale criteria has been met.
The guidelines should help to develop a securitization market. Diane Lam, director at Standard & Poor’s reports much interest amongst arrangers and issuers, which has led to many conferences in Kuala Lumpur. “There are several mandates being discussed, for a Ringgit denominated consumer finance deal, and a Ringgit denominated collateralised debt obligation,” she said.
“And Malaysian law is based on English law so it makes it much easier to understand the issues concerning securitization. We expect within the next year to see ringitt deals launched, but cross-border deals may have to wait until we see better conditions and more active swap markets.”
The guidelines do not allow the originator to purchase more than 10% of ABS issued by the SPV, but this does not apply to subordinated debt. “There will be no cap on buying subordinated debt – this will be considered on a case by case basis,” said Chris Chau at Fitch in Hong Kong. “Emerging markets transactions tend to have higher subordinations in order to achieve similar high ratings. This seems a very fair approach.”
And the guidelines do not encompass bank assets. “They will still have to get Bank Negara’s approval,” said Chau. “From a volume perspective Malaysia has enough to digest for the time being. This is not gong to be a major issue for the next two years. After that banks will have to come on board.”