ross-border securitisation has never been as prominent in Asia as elsewhere, and there has always been a sense that this is a market for the future. But any progress that had been made was quickly reversed in 2009 as investors largely turned their backs on the product, and the outlook for the market remains clouded.
"Investor appetite is improving for conventional ABS deals, but right now there are still not enough investors to do public cross-border deals," says Andy Lai, head of securitisation for Asia Pacific at BNP Paribas in Hong Kong. "That has been the case since the second half of last year. Most deals are private placements or sold straight into conduits."
The most prominent of those private placements was Shinhan Banks $400m residential mortgage securitisation, which was bought entirely by the government-owned Hong Kong Mortgage Corp. It was expected to be the first of two RMBS deals sold by Korean banks directly to the HKMC, but an issue from Woori Bank did not materialise and the one-off deal offered little encouragement to others.
"It was a private placement bought by a single investor," says Richard Lamb, the Tokyo-based head of fixed income debt capital markets for North Asia at Royal Bank of Scotland. "Thats very specific and does not mean much for the return of structured finance in Asia."
Koreas Asiana Airlines was able to find Japanese demand for a ¥4bn ($41m) ticket receivables deal placed by Deutsche Bank in March, but Asian companies that wanted to securitise their assets last year largely had to rely on the domestic markets.
Asias domestic ABS markets have shown signs of development, as state mortgage agencies in the Philippines and Indonesia were able to open up their respective RMBS markets in 2009. Standard Chartered placed three deals in the two countries, with a small combined value of $91m.
But the bank has wider ambitions and was marketing an electricity receivables issue for the Power Sector Asset and Liability Management Corp (Psalm) as this article went to press. The issue was originally intended to be Ps40bn ($869m), and while the issuer lowered its ambitions after raising money elsewhere the deal was still expected to set a new high watermark in the nascent Philippines market.
Landmark local deals, however, cannot make up for the lack of activity in the far bigger, more mature markets, and here bankers see little sign of improvement.
The Japanese ABS market suffered a drop in volume of 34.7% from ¥36bn in 2008 to ¥23.5bn by the middle of December 2009, according to Dealogic and bankers say the outlook for 2010 looks grim.
"Its hard to see where volumes are going to come from in Japan," says Lamb.
ABS issuance in Korea was worth W18.6tr ($16bn) in the first half of last year, compared with W11.2tr in the same period 2008, and W9.1tr in the first-half of 2007.
The rise in domestic volumes owes much to the lack of international alternatives, but bankers hope the heavy domestic issuance could now lead to a spillover in the other direction, leading Korean issuers back to the international market.
"The financial crisis really hasnt had much of an impact on the Korean securitization market," says Warren Lee, global head of structured financing solutions at Standard Chartered. "It is likely that Korean issuers will look to re-enter the international securitisation market to diversify their funding sources."
Those Korean issuers now have an alternative to mortgage-backed securitisations: they can use the covered bond format established by Kookmin Bank when it sold a $1bn deal in May. But at least one cross-border RMBS issue is expected from Korea this year, alongside an auto loan securitisation, while state-owned Korea Housing Finance Corp is the only issuer committed to issuing a covered bond. But Korean borrowers which do attempt to sell international RMBS deals this year will have their work cut in finding a willing investor base and the first few deals if the market returns are likely to have to pay high spreads.
"The problem Korean cross-border issuers have is that their previous deals were mainly sold to conduits, so nobody knows who they are and how theyre performing," says Will Ross, head of the financing solutions group at HSBC. "They dont get the benefit of being a repeat issuer."
Australian investors are regaining their appetite, bolstered by a A$16bn war chest the government has given the Australian Office of Financial Management (AOFM) to invest in the RMBS market. Half of that has already been invested across 20 different new issues.
The AOFM has been positioning itself as a "cornerstone investor" in RMBS deals, taking the lions share of an issue and then trying to encourage other investors to join in. It is now looking to take a more back-seat role, in a response to signs that private sector investors are returning. Members Equity raised A$2.28bn from three deals without the AOFMs backing, and more recently Bendigo and Adelaide raised A$1bn.The AOFM money has been welcomed by structured finance bankers in the country, and the government appears to be achieving its aim of improving mortgage competition in Australia even if the debt agency has at times distorted the RMBS market.