Asia's cross-border securitisation issues may grow about 15 percent in value in 2007, driven by new business from commercial banks keen to improve their capital adequacy ratios, Fitch Ratings said on Wednesday.
However, growth in last year's $6.0 billion market is likely to be crimped by competition from cash-rich banks which are more than willing to extend credit to borrowers, Stan Ho, Fitch Ratings' Senior Director for Structured Finance in Non-Japan Asia, told Reuters in an interview.
Singapore's real estate investment trusts - among the most frequent issuers of commercial mortgage-backed securities (CMBS) - are even starting to choose quick and easy bank loans over securitisations, Ho said.
"Asia's securitisation market suffers from the fact that there is a lot of liquidity in the market, so issuers either do not have any funding incentives or if they do, they have a lot of other funding options to choose from," Ho said, ahead of a structured finance conference in Singapore on Thursday.
Securitisation is a process in which a company raises low-cost debt by selling bonds backed by a steady stream of cash income from a pool of assets set aside specifically for that bond, such as property or credit card debt. "Unless there is a significant credit cycle downturn or a property market downturn, the liquidity will still be here," Ho said.
However, issues by the big commercial banks could provide a new source of growth for Asia as they work to better manage their existing loan portfolios as required by new Basel II regulations.
Banks are able to reduce balance sheet risk and free up lending capacity by selling bonds backed by assets such as loans. In addition to risk reduction, these bonds also raise funds for them.
Ho said banks such as Citigroup, HSBC, Standard Chartered and ABN-Amro could potentially be good sources of new issues for Asia. "They may want to do securitisation for more efficient capital management." Ho said Fitch received a flurry of calls from interested parties following Citigroup's December trade-finance loan securitisation issue, which the agency says provided a template for multi-country securitisations.
Fitch expects South Korea and Singapore will be the busiest markets for securitisations in the region this year thanks to strong activity by Korean credit card and auto loan firms and as Singapore property companies seek cash to fund new purchases.
Singapore's CapitaMall, the city-state's largest property trust by market value and one of its earliest and most active CMBS issuers, has said that a third of its portfolio would be in overseas property assets by 2012. CapitaCommercial Trust has announced plans to grow their assets by 2009. "The real estate market has been performing well and the investor sentiment is strong, leading to more acquisitions and hence financing opportunities," Ho said.
However, Singapore's REITs are keen on other cost-efficient funding options and banks are also quickly snapping up those lending opportunities. Ho expects the CMBS market share of REIT debt issues - currently about 90 percent - will likely shrink this year, although he declined to say by how much. "Apart from CMBS, borrowers can also opt for unsecured bonds or even bank loans as banks have been increasingly comfortable with real estate lending and are able to offer more attractive pricing."
Comments
Comments are closed.