Securitisations resurface in Singapore

PHOTO: Securitisations resurface in Singapore

HONG KONG - Two Singapore firms completed private placements of asset-backed securities this week in a level of activity for structured bonds not seen since the 2008 financial crisis.

"People are finally warming up again to securitisation, and we expect the market-opening trades to have follow-on trades,"said Peeyush Pallav, vice president, structured debt solutions at DBS Bank.

Issuers, too, are looking at securitisation to diversify their sources of funding as banks run up against single-borrower limits and as they review their risk-weighted assets amid tighter banking regulations.

"In 2006, there was a lot of demand being driven by structured investment vehicles and conduits. Now, it is more driven by the fact that you must have some secured bonds and structured debt in your capital structure in addition to the usual loans and equity for funding diversification," Pallav said.

The asset-backed deals today also are being structured differently than in their last incarnation. Bankers are now creating the transactions with domestic investors in mind, rather than those offshore, and selling them in local currencies instead of US dollars.

Another change is these deals are being placed privately with investors, thus shielding them from mark-to-market risks.


The proof came in the transactions last week of TG Master, a Singapore property developer, and Courts, a furniture and consumer goods retailer.

TG Master sold senior secured bonds through a special-purpose vehicle called Orchis Capital. The offering, denominated in Singapore dollars, is legally due in March 2018, but has an expected maturity of March 2017.

The bonds are backed against proceeds from presales of units in Skies Miltonia Property, a high-end project being developed in Singapore's Yishun Avenue, featuring 420 residential condominiums and two commercial units. DBS was the sole lead manager on the transaction.

Courts's transaction involved two jurisdictions as it was backed against pools of instalment loan receivables originated in Malaysia and Singapore. The asset-backed bond is the first in Asia ex-Japan to involve more than one country or currency. HSBC managed and structured the deal.

The weighted-average life for both deals is three years, while the legal maturity for each is five years.


The success of both transactions has bankers in Singapore betting on a revival of the securitisation market and suggesting more deals are in the works.

However, not all issuers may want or need to do securitisations. Courts, for instance, may have found it cheaper to sell asset-backed securities than unsecured bonds, but that may not be true for others.

The retailer recently paid 4.75 per cent, or 412.2bp over the swap offer rate, for an unsecured three-year S$125m bond.

The pricing details of the asset-backed deals were not made public as they were both private placements, but bankers suggested Courts saved significantly in issuing securitised notes.

"Asset securitisation against our credit receivables is a compatible model to our business needs," said Kee Kim Eng, executive director and group CFO, Courts Asia.

"Our ambition to grow as a business means we will potentially have a bigger-sized credit receivables book to secure in exchange for a higher level of borrowings," Kee said.

Still, a banker not involved in the deal suggested that, as blue-chip developers from Singapore paid only 100bp-150bp over the Singapore benchmark rate on unsecured paper, they were unlikely to seek securitisations.

However, even blue-chip developers may change their minds as banks start to hit single-borrower limits.

"Every condominium construction since the abolishment of the deferred payment scheme in Singapore has been funded through progress payments, land loans, developers' equity and construction loans," Pallav said.

Even though most local investors are still more comfortable buying unsecured bonds, some have warmed up to the fact that asset-backed securities can offer better returns for their rating, and they like that the bonds include collateral that is also in their home market, bankers have said.