Asian Debt Deals Stalled

Nov 23, 2007

Asian debt deals stalled by credit crunch: Stanchart
20 issuers put plans on hold; debt sales slump, mainly those by property trusts

STANDARD Chartered (Stanchart) said yesterday that about 20 Asian asset-backed securitisation deals, worth at least US$300 million (S$434.4 million) each, have been delayed till next year because of the turmoil in the credit markets.

Issuers from countries such as China and South Korea have stayed away from the debt securitisation market, but would return next year when bond yields are likely to stabilise, according to Mr Warren Lee, the bank's head of asset-backed securitisation in Asia.

'The spread has widened by maybe 50 per cent in Asia, but not as much as in the United States, where it has widened by three to four times,' he told Reuters in an interview.

'In Asia, let's say yield spreads were 25 basis points; now they are 40 basis points in that range,' he said.

South Korea's Kookmin Bank has withdrawn plans to sell as much as US$1 billion in residential mortgage-backed debt, and several commercial-backed debt deals in Singapore and South Korea have been postponed, bankers have said.

However, Mr Lee said that, despite the pricing issue, markets such as Singapore and China were still flush with funds and investors were looking to invest their money.

He said local currency deals, which are normally small in size, could still go ahead despite the credit turmoil.

Dealogic data showed that sales of debt securities backed by assets in Asia, excluding Japan, have eased to US$9.2 billion this year, from around US$13 billion for the whole of last year.
Deals have slowed sharply since August, when the effects of the US sub-prime mortgage crisis started to be felt across global markets.

Commercial mortgage-backed securities (CMBS) - which are issued mostly by real estate investment trusts (Reits) to finance projects - have been especially hard-hit.
Only one CMBS deal, worth US$174 million, was completed this year, against seven deals in 2006 valued at US$1.4 billion, Dealogic data shows.

Mr Lee said property trusts have stayed away from the securitisation market since sharp gains in their share prices made raising equity cheaper than issuing debt.

'The share price in Singapore has gone up a lot, so if you calculate the equity yield that they pay to investors, it is like 3 per cent,' he said.

In contrast, larger Singapore Reits have average borrowing costs of over 4 per cent, bankers said.

But Mr Lee said he expects issuers to return to the market because many of these Reits will have to refinance maturing CMBS issued three to five years ago.

'Property trusts are still keen to buy assets, which would require debt raising,' he added.
REUTERS