A wave of synthetic collateralized debt obligation transactions is expected to hit Taiwan, driven by firms looking to offload structured bonds. Structured notes were snapped up from domestic bond-fund subsidiaries last year, after the notes attracted the concern of the Bureau of Monetary Affairs (DW, 2/4). Now, parent companies are teaming up with international houses to repackage the notes, combining them with investment-grade global CDOs.
"Everybody's working on deals," said Charles Chang, director, in credit products for Asia at Fitch Ratings in Hong Kong. Market officials estimated there are over 20 CDO deals in the pipeline that firms are pushing to issue in the coming months. "The conditions are in place for a 'big bang' in CDOs for this market," said Chang. Officials predict issuance going into mid-year should be about double the total number of deals completed last year in the market.
Among the deals at the start of the wave is Taishin International Bank's USD59.5 million collateralized bond obligation that incorporates Taiwan dollar structured notes and a U.S. dollar single-tranche CDO. The paper was issued earlier this month and structured by Lehman Brothers. Leon Hindle, v.p. in structured credit trading at Lehman in Hong Kong, declined comment.
The deals are expected to contain single-tranche global CDOs with maturities of five to seven years and ratings around A plus or AA minus. One credit marketing head at a bulge bracket house in Hong Kong cautioned while there is a queue of deals it will likely take longer than many anticipate, given the regulators will need to sign off on the transactions on a case-by-case basis.
An additional challenge, market officials said, is to prevent a large number of issues with similar exposures, which will result in a number of deals being brought back to the drawing board. "The regulators are taking a close look at the reference pools to see if there is any overlap and are trying to ensure the risks are not overly concentrated," said Chang. Several market officials though expect the majority of these deals should be completed in the first half of this year.