Major credit derivatives houses in Japan, including JPMorgan, Merrill Lynch and Société Générale, are racing to complete the first synthetic collateralized debt obligations referenced solely to Japanese asset-backed securities. "We've been seeing a few ideas," said Yusuke Seki, v.p. in the structured finance group at Moody's Investors Service in Tokyo. Seki expects the first deals to hit the market within six months. Market officials estimated that the CDOs would be over USD500 million.
Gordes Frobenius, head of sales in the structured products department at SG in Tokyo, said ABS is popular in Japan, so this is the next logical step for CDOs. "Everyone's looking at offering the same things," he added. JPMorgan also plans to market the product, according to structurers at the firm. The bulge bracket is also looking at combining Japanese and Asian ABS and selling the deal investors in non-Japan Asia (DW, 5/11).
Shun Cajot Yoshida, credit structurer at BNP Paribas in Tokyo said, the lack of liquidity in Japan's ABS market relative to the U.S., means it will take some time before the products take off. Kitihara estimated that there is about JPY10-15 trillion (USD85.2-127.9 billion) in outstanding ABS issuance in Japan. BNP's Yoshida, predicted that this market will kick off next year, adding that BNP will likely structure the products once there is ample demand.
Ichinori Kitihara, chief analyst in the structured credit group at Rating and Investment Information in Tokyo, however, said, "There's definitely enough underlying assets to do synthetic[s]."
On the investor side, Tokio Marine & Fire Insurance Co. is open to the product because it would diversify its portfolio and is a safer asset class than corporate debt, according to a firm official. The insurance giant kicked off its CDO investment debut early last year (DW, 6/23/02).
