Aided by a glut of deals in September, issuance for the fiscal half year in Japan was up 35% from last year, reaching 2.37 trillion ($21.3 billion). As well as establishing a record for a fiscal half, securitization volumes topped straight debt issuance for the first time, with corporate volumes just exceeding 2 trillion.
The consensus of separate research compiled by Deutsche Bank Securities, Mizuho Securities and Merrill Lynch indicates total ABS issuance in 2004/2005 should be around 5 trillion.
The principal reason for the surge is the growth of mortgage-backed deals. Prior to this year, the Government Housing Loan Corp. issued most MBS transactions, but private sector issuers are coming to the forefront. With long-term interest rates on the up, many banks now offer long-term fixed-rate mortgages and rather than keep them on the books, are increasingly using securitization for balance sheet management.
In September alone, Sumitomo Mitsui issued a mega 164.5 billion transaction – its second MBS of the year – Chuo Mitsui Trust completed its third MBS of 2004, while Bank of Yokohama also closed its second deal.
They were joined by newcomers including Chiba Kogyo, Hokuto Bank and Tokai Labor Bank, pushing September issuance to 847 billion – one of the best months on record – and RMBS issuance for the year to 1.6 trillion. This marks the first time MBS issuance exceeded 1 billion for a fiscal half, and was up 230% versus last year.
Given the poor disclosure associated with Japanese securitizations – with details on many private transactions not publicized – the actual total may be much higher.
Other asset classes are also rising. CMBS volumes are up 56% to 340 billion, while consumer loans, equipment leases and CDOs have also seen growth. Despite increasing supply, spreads across the board have tightened by three to five basis points in the past three months. But with securitized notes still offering some pick-up over government and corporate paper, demand should remain strong for now.
Staying in Japan, Bank of Tokyo Mitsubishi and Mitsubishi Trust and Banking Corp. – both subsidiaries of Mitsubishi Financial Group – are working on a securitization backed by monetary claims on a Tokyo redevelopment project.
The deal will monetize claims held by Diamond Lease against Mitsubishi Estate Company over fees paid for leasing elevators in its headquarters. Such transactions are not uncommon, although it is unusual for only a single debtor to be involved.
BOTM and MTBC are hoping to entice individual investors with target returns of 2%, higher than those available from banks or government bonds. They plan to raise 3.8 billion from the offering, which will have a 22-month maturity.
Shinsei Bank will in November begin a program aimed at helping small and medium sized hospitals raise cash upfront by securitizing scheduled reimbursements from the national health insurance system.
Under the plan, hospitals will sell their rights to monthly reimbursements to a trust bank, which will package those rights into trust certificates and sell them to investors. Based on historical data, Shinsei will calculate how much hospital insurance is likely to be worth for the next three years, and pay 80% of this to hospitals immediately, plus a small fixed-rate sum for the term of the deal.
Shinsei will team up with medical administrators IROM and the consultancy firm Nihon Medical Partners to bring the deal to market.
Elsewhere, sources say Deutsche Bank is finalizing the structure on a future flow securitization for Singapore-listed water treatment company, Hyflux, which has operations in Asia, Africa and the Middle East.
Deutsche was appointed in August to evaluate the securitization of SingSpring, a wholly owned subsidiary of Hyflux, currently developing the first water desalination plant in Singapore. The plant is contracted to supply water to the Public Utilities Board for the next 20 years.
Project construction of the project is scheduled for completion December 2005. Depending on PUB approval and market pricing, the securitization could be completed by the end of the 2004, which would leave Hyflux holding 30% of SingSpring.
Securitization in this case makes sense, according to Olivia Lum, group chief executive officer and president of Hyflux, as the company does not have sufficient equity to construct projects alone.
“In addition to SingSpring, we are in the midst of developing other big projects [in Thailand, India and the Middle East] on a design, build, own and operate or transfer arrangement,” says Lum. “To capture these and other opportunities, we need to tap various sources of financing and securitization offers us flexibility to structure our projects in such a way as to optimize our financial capability.”
Moving down under, Australian Mortgage Securities completed its sixth deal of 2004 through the ARMS vehicle, pushing the monoline’s issuance for the year beyond A$5 billion ($3.6 billion). AMS latest issue, led jointly by ABN AMRO and Westpac, was upsized from A$750 million to A$1 billion due to strong demand.
The transaction was split into two tranches. The A$974 million 2.7-year senior notes, rated triple-A by Moody’s Investor’s Service and Standard & Poor’s, priced at 30 basis points over the bank bill swap rate, with the A$26 million five-year subordinated notes – rated double-A by both agencies – priced at 53 basis points over BBSW.
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