Malaysia is one of the few countries in East Asia that has yet to develop a real securitization market, but that could be set to change. Several investment banks are at one stage or another of securitizations in Malaysia with Nomura International the first to make a public announcement that it is working on a deal.
Nomura is working on an “operating company” or “whole business” securitization for a Sarawak-based silicon wafer manufacturer called 1stSilicon. The deal will parcel the revenues of the business, principally sales of wafers, the building blocks of semiconductors, plus all of the company’s assets.
It is expected to be completed in the first quarter of next year and, if it is a success, it will refinance a $180 million syndicated loan that Nomura has already organized for the company.
The transaction will need to be innovative because not only is Malaysia still largely unknown territory for ABS, but the deal could also become the first securitization of wafer sales, a product known for price volatility.
“These things are volatile assets to work with,” said one ABS expert. “Nomura and the rating agencies will have to put in a lot of work to come up with models to assess the way that pricing moves. The agencies will no doubt insist on pretty conservative assumptions.”
This problem will be compounded because 1stSilicon has yet to start production – it plans to start in the third quarter of this year – and will therefore not have much manufacturing history or sales data to point to.
Nonetheless, there is plenty of available data from the industry in general and that will make it possible to come up with the necessary models, a Nomura official said. The official declined to give details of the structure of the transaction, beyond confirming that it would be denominated in dollars, though reports in London suggested that the deal would have a maturity of between five and seven years, and a rating at the foreign currency sovereign ceiling.
The Japanese bank, which is working on the deal from its London, Hong Kong and Kuala Lumpur offices, will also be able to point to 1stSilicon’s relationship with the Japanese electronics giant, Sharp, which has committed to buying $300 million worth of wafers over the next few years.
Nomura’s ABS experts will also have the advantage that unlike most investment banks that have looked at Malaysian securitization, they are not attempting to structure a transaction for a financial institution. Deals have foundered in past because of the difficulties of working on financial assets, such as mortgages, in a complex regulatory environment.
The bank already has experience of arranging structured finance transactions in the country, after 1998 triple-A rated transaction that raised $700 million for the Government of Malaysia via a loan advanced by Sumitomo Bank and guaranteed by the Japanese government.
It also has considerable experience in operating company deals in other sectors, including parceling revenues from Marne et Champagne, the world’s second largest champagne producer, for which Nomura arranged a E396 million securitization in March. That deal had to be structured to take into account the potential volatility of the champagne stocks in various stages of production that made up the collateral and therefore may prove useful experience in the seemingly unrelated world of silicon wafers.
Any deal will benefit from improved sentiment on Malaysia, which is rated BBB and Baa3 by Standard & Poor’s and Moody’s Investors Service respectively and on review for upgrade by Moody’s. It will also put in place a template for ABS issues from the many other wafer and semiconductor manufacturers both in Asia and elsewhere. Experts said that any new finance raising technique is likely to welcomed by such companies, as the computer chip industry is massively capital intensive and requires virtually constant investment in machinery.
1stSilicon is not the only outfit hoping to securitize computer chip revenues, however. Japan’s Marubun Corp., a semiconductor trading firm, is planning to raise 3 billion ($28 million) from a securitization of its account receivables via the asset-backed commercial paper market.
