Southeast Asia to speed up securitiztion process

Southeast Asia to speed up securitiztion process

By Lynn Adler

NEW YORK (Reuters): Southeast Asia and securitization will be intertwined in 1999, experts predict.

Unable to access or afford other traditional funds, cash- strapped companies and government agencies there are feverishly crafting deals and meeting with rating agencies in attempts to securitize assets -- many for the first time.

So far in 1998, the volume of new securitized deals has not kept pace with grandiose market expectations. Each offering can differ considerably from the next, and risk analysis can be lengthy. As a result, volume is seen accelerating in 1999.

"Most of the activity will be done in the first six months of next year," John Speaks, Tokyo-based vice president and senior credit officer at Moody's Investors Service Inc, said of the deals now percolating.

"You do have a high degree of risk," he said. "You're talking about countries with undeveloped legal and regulatory systems," he said.

"It's pretty dicey. Nevertheless, there's a lot of desire to do these deals and where there's desire there's usually a way."

Asset-backed securities (ABS) can be structured to insulate investors from currency and credit risk. Southeast Asian issuers will pay a premium, but not nearly as high as the cost for issuing straight debt. Another draw for buyers is that the revenues would be kept offshore.

Deals in talk include securitizations of future credit card receipts, export revenues, real estate and airline tickets. Thailand, Malaysia, Hong Kong and Korea are all working on deals securitizing performing assets, sources said.

"Each one of these deals in each one of these countries requires a fair amount of work to get the first deal done," said Alvin Hageman, managing director of global securitization at Citicorp Securities Inc.

Combined with credit difficulties, it means the revving up process is gradual, and a host of legal and structural matters, varying by nation and issuer, mean that deals get done selectively, he added.

Investor concerns must be assuaged, and issuers cannot tap the market until the offering is considered truly saleable. Numerous deals shelved last fall after the Asian crisis broke still hover in the wings.

Moody's forecasts $2 billion in Southeast Asia ABS in 1998, with significant potential for higher volume next year.

Specific volume projections for 1999 are scarce, with analysts waiting to see what structures from what countries take off with buysiders.

Some nations have new entities that mimic the Resolution Trust Co that helped bail out failed U.S. thrifts in the late 1980s and early 1990s. Those entities will specifically handle non- performing assets.

Japan, separately, is seen as the largest Asian ABS issuer. There too, ABS is on an upward trajectory as fiscal turmoil squeezes out other funding sources and hikes borrowings costs. One likely issuer there, Nissan Motor Co Ltd, may securitize auto leases for the first time.

Ben Harwood, Treasurer of Nissan Motor's Nissan Finance of America unit, said market talk of a $100 million deal seemed "way too little."

He added: "We have billions of dollars in leases. We're not in the market right now, but it is something we will be doing. Probably next year."

Moody's said none of the deals it is rating in non-Japan Asia are near closing, although some may be by year-end. Most are in Hong Kong and Korea, some are future flow deals and collateralized loan and bond obligations. Some are insured.

"A lot of people want to do deals, but how many deals actually get done is another story," Speaks said.

"You can't really sell a deal if it's not at least rated investment grade and the stability of these countries is certainly not very good. It could be difficult to sell the stuff even if you do manage to get an investment grade rating."

Hageman agreed that structuring debt to protect investors from potential issuer dangers is crucial.

"You don't want asset questions and cash flow questions in addition to sovereign risk questions," he said. "The country risk is probably enough of a story to sell to investors."

Above all, securitization cannot make bad loans good, experts agreed.

Window: Asset-backed securities (ABS) can be structured to insulate investors from currency and credit risk. Southeast Asian issuers will pay a premium, but not nearly as high as the cost for issuing straight debt.