Thailand

Thailand is coming back. That message rings out loud and clear from investment banks. The country which made the securitisation community look silly in 1997, when half a dozen finance companies which had awarded mandates were suspended — permanently, as it later transpired — is now firmly back on banker’s itineraries .

  • 01 May 2012
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The first Asian securitisation of 1998, outside Japan, emerged at the end of March when Daiwa Securities arranged a $100m securitisation programme for Wongpaitoon Group PCL, backed by dollar revenues from sales of footwear products to Reebok.

Daiwa has placed the first bond from the programme with dedicated structured finance accounts. The deal is the first future flow securitisation for a Thai issuer and signals the market’s return to fertility after a 10 month fallow period.

As elsewhere in Asia, attention has shifted since last year’s currency and ratings collapse to offshore hard currency revenues. "The swap market disappeared when Thailand shut down transferability last year," says Chris Millar, managing director of project and structured finance at Bankers Trust.

"Clearly when you’re dealing with dollar assets you’re in a far stronger position. We have a couple of future flow deals in pitch mode, including some new concepts we’re putting forward."

BT is also working on an export trade finance deal in Thailand. "In Thailand and Indonesia the banks tend to use sight letters of credit for trade finance," says Millar. "Those are bills which mature as soon as the overseas bank sees the trade documents, rather than carrying a term of 30, 60 or 90 days. The short maturity makes them similar to credit card settlements."

Deutsche is believed to be working on a trade receivables securitisation for Bangkok Rubber, which sells shoes to Nike, Reebok and Adidas, while Daiwa Securities has a mandate to structure a securitisation programme for Betagro, backed by sales of processed chicken to Japan.

But, in an even stronger sign that investment bankers are bullish about Thailand, deals backed by domestic currency assets are attracting attention again.

CSFB has a mandate dating from before the crash to securitise baht receivables for a Thai corporate. Raj Shourie, head of Asian securitisation at Credit Suisse First Boston (CFSB), says: "There will be pockets of demand for swapped product. We would be willing to look at
performing the swap."

More and more market participants believe that the swap market is returning for the Thai baht faster than for other Asian currencies, and the deals being structured reflect that conviction.

In August 1997, ING Barings was on the point of launching a $170m auto loan securitisation for Kiatnakin Finance & Securities, when the finance company was suspended along with 57 others by the Bank of Thailand.

Earlier this year Kiatnakin became one of only two companies to be released from the suspended list — and ING has resumed work on the securitisation.

"The deal will be a bit smaller, probably $150m, partly because the baht has fallen in value and partly because the portfolio has been paying down," says Jim France, director of the bank’s Asian securitisation group.

"There is no urgency — we want to take time to explain the structure to the monolines. We had been working with MBIA but we need to make sure they’re still comfortable."

The consensus among investment bankers is that securing a monoline guarantee is the preferable route to executing a Thai securitisation in today’s market, but they remain uncomfortable with this dependence on one constituency.

"The difficulty with monolines is you have to convince them and both rating agencies, which means the structuring process can take longer," says Anthony Cutcliffe, head of asset backed finance for Asia at SBC Warburg Dillon Read. "For some deals a monoline wrap is the only option — the issuer may have very good assets, but the market’s perception of them is what matters. There may be one or two deals in Thailand that can get done without a wrap."

The renewed confidence in Thailand’s potential for securitisation is even leading bankers to consider a third avenue of placement — baht denominated securities. "We have thought about structuring highly rated bonds in baht and selling them to overseas banks looking for a yield pick-up," says Millar. "But the currency is still volatile. They would have to be very short term securities."

ING Barings has a mandate to securitise residential mortgages for Bank of Asia, recently acquired by ABN Amro, and is considering placing some or all of the $75m equivalent deal in baht.

"There is a select group of domestic investors with liquidity — notably banks," says France at ING. "One positive effect of the suspensions was that depositors moved their money from the finance companies to the strongest banks, so they have plenty of cash even if they have a lot of bad assets. A mortgage deal would offer them a good yield pick-up."

The essential basis for Thailand’s swift recovery as a potential source of asset backed deals is the relatively benign legal environment. The Thai government has been encouraging securitisation since 1996, and last year it issued a securitisation decree setting out a framework for special purpose vehicles.

The decree provides for SPVs to be bankruptcy remote, provided that assets have been truly sold into the structure.

Though numerous technicalities remain to be addressed, the overall intent of the law is to assist securitisation, and that supportive tone by and large reflects the attitude of the regulators. "The Bank of Thailand has come to the conclusion that the deals make sense," says Paul Kruger, partner at Clifford Chance in Hong Kong.

Thailand also boasts successful templates for deals — ING Barings’ three pioneering auto loan transactions in 1996 and 1997 — and a relatively diversified economy offering a broad range of potential assets.

Gary Watmore, director of securitisation at Deutsche Morgan Grenfell in Singapore, says: "All the research suggests the country is in deflation and delinquencies and defaults will rise through 1998. But investors are rational about the credit situation in Thailand, and this is a supportive factor, not an impediment."

However, the main reason why securitisation bankers have been booking flights to Bangkok in recent months is the Financial Sector Restructuring Authority (FRA).

The FRA was set up at the behest of the IMF to liquidate the 56 finance companies which remain suspended by the Bank of Thailand. The companies have total assets of $18bn, including a wide variety of consumer credit products.

Non-performing loans are already being foreclosed on and collateral such as cars repossessed. But the FRA’s core task will be to
auction performing asset portfolios.

The FRA’s mandate is to maximise the recovery for shareholders, but the IMF’s insistence that all the assets be disposed of before the end of 1998 will weight the scales in favour of the potential buyers.

Thai institutions will be among the bidders, but asset backed bankers will be hoping to pick up pools of assets at knockdown prices.

The FRA has revised its original intention of organising the sales in blocks of 10 finance companies — instead, similar assets from various companies will be sold together, beginning with the simplest and progressing to the most complex. That method is much better suited to the needs of securitisers.

Lehman Brothers has won the mandate to organise the first auction, the details of which will be announced at the end of April.

Because of the pressure from the IMF and Thailand’s difficult financial markets, the FRA process is unlikely to be as smooth as that overseen by the Resolution Trust Corporation which cleaned up the savings and loan debacle in the US in the early 1980s.

But it will still constitute a huge and orderly disposal of assets unique in Asia, and could provide a strong platform for Thai securitisations.

  • 01 May 2012

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