Speakers noted a recent move by Taiwanese regulators to widen the band of foreign assets in domestic collateralized debt obligations, moving away from synthetic-only CDOs to allow asset-backed securities and potentially other debt securities.
Over the last year, repackaged structured bonds incorporating U.S. dollar-denominated global static synthetic CDOs and domestic structured interest-rate notes have taken off in Taiwan as regulators pushed local bond funds to dispose of their structured note holdings (DW, 3/18/05). This year, however, several of the deals have been hit by negative ratings migrations and downgrades due to credit volatility in the static synthetic CDO pools. "The market has become quieter as investors have been hurt [by the ratings moves]," said Sean Chu, v.p. in the trust department at Industrial Bank of Taiwan in Taipei. Following investor lobbying, Chu noted the Financial Supervisory Commission recently green-lighted cash ABS from overseas to be used for the repackaged bonds. "The market is searching for more stable foreign assets to be put in the portfolios," said Gloria Lu, assistant director at Standard & Poor's in Hong Kong.
Attendees were hopeful that the scope will further be widened in the coming months, but noted the regulator has been taking a step-by-step approach. "Maybe next we'll see that synthetic ABS can be put in these deals," said Chu.
