StanChart’s synthetic trade finance securitisation, backed by the International Finance Corp, no less, was worlds away from the Abacus deal, which referenced subprime RMBS.
In fact, StanChart’s deal is using synthetic securitisation techniques to boost the availability of trade finance to some of the plante’s poorest countries.
Funky credit derivatives saving the world? — take that, naysayers.
Like many, I was initially sceptical of synthetic technology back in 1997 when JPMorgan came out with its first Bistro deal, but that may have been more because I find years of market watching have given me a strange aversion to anything labelled with a catchy-sounding acronym.
And of course, one could argue that the events of the past three years have proved my initial suspicions right. But it would be too easy to blame the technology for the results of poor credit decisions on the part of investors, and for overly bullish originators and distributors.
The truth is that synthetic securitisation is a useful model and one that we need to see more of in Asia.
Just like any form of securitisation, allowing investors to take on the credit risk of an institution’s portfolio of assets frees up capital that can be more usefully deployed elsewhere, and allows banks to provide useful things like trade finance loans, student loans — and, of course, mortgages. But the flexibility and speed of implementation you get with synthetic as opposed to cash securitisation greatly reduces warehousing risk, among other things.
So I say well done to StanChart for bringing this technology back into the public eye. I hope it will lead to more of its kind, and bring more expertise and (sensible) financial innovation into the region.
Just as long as nobody gets too carried away.
High yield hopes
It had to happen sooner or later. I can’t say I was too surprised to hear that a Chinese property company cancelled a high yield bond sale this week — there were just so many of them out there at once that it seemed almost inevitable that some would work better than others.
Glorious Property was the unlucky one, pulling a deal even after Kaisa and Agile managed to get theirs away. So what does it mean for Asia’s resurgent high yield market?
First off, Glorious is no stranger to busy markets. It was the same story at the start of October when the crowd of developers looking to list in Hong Kong left investors with some serious indigestion. Glorious’s shares had a rough debut, tumbling a whopping 14.5% on their first day out, but squeezed through at a time when others around it were missing price targets and cancelling deals.
Couple the sheer number of competing deals this week with news of another clampdown on China’s increasingly bubble-like property market and Glorious’s decision to hold off looks sensible. It clearly is not looking for cash at any price.
But from another angle Glorious is a surprise contender for a failed deal, especially after the smaller Kaisa was able to get its bonds away a day earlier. There hasn’t been a big sell-off that would indicate investors have reached their limits, so it’s hard to imagine they suddenly changed their minds over where Glorious should price.
More likely Glorious was simply expecting a number well below the 14% mark and was unable to get it.
Investors, meanwhile, know there are plenty more companies that will pay up. China has cracked down on domestic property lending before, so issuers know the value of maintaining access to international capital and many more will be looking to tap the dollar markets before the window closes. High yield buyers also have another option in the form of Indonesian issuers.
The other Chinese developers who are looking to announce deals in the coming weeks are going to have a tougher time after this week, but it’s too early to call time on Asia’s high yield market just yet.