HypoVereinsbank and Keppel Land took the development of Singapore's asset backed securitization (ABS) market a stage further by bringing to market the first cross-border offering from the Lion City in a deal worth around S$300 million.
The transaction, which issues notes in both US and Singapore dollars, is backed by property receivables on sale and purchase agreements from 455 apartments in three condominium developments in Singapore û Amaranda Gardens, Butterworth 8 and The Edgewater û which are in the process of being constructed by Keppel.
Under the terms of the sale and purchase agreement, legal completion of the condominiums is due in 2007 and 2008. However, as only three apartments remain unsold, and the total value of the sold units is close to S$390 million, there is significant overcollateralization provided by the underlying receivables.
Aside from being Singapore's first international ABS, the use of a two-step structure is also fairly unusual. Rather than Keppel Land directly transferring the revenues into an offshore special purpose vehicle, with this transaction Hypo will pay S$265.3 million to Keppel to purchase the receivables and issue the bonds itself from a Singaporean incorporated SPV called Jasmine Investment Corporation.
This was done at the behest of Keppel, which was looking first and foremost to do an off-balance sheet deal with the secondary benefit of reducing gearing.
The transaction was split up into a $144 million piece and two Singapore dollar-denominated tranches worth S$45 million. All three tranches have expected maturities of three-and-a-half years and legal final maturity of five-years.
The senior US dollar piece received triple-A ratings from Fitch, Moody's and Standard & Poor's and priced at 33bp over three-month Libor. Additionally, the S$30 million class B notes û rated Aa2 by Moody's and double-A by the other agencies û and S$15 million single-A rated class C notes offer fixed rate coupons of 2.97% and 3.25%, currently 58bp and 86bp over Sibor. The all-in cost to Keppel Land was 2.8%.
In terms of placement, Hypo looked to the UK and European investors that like US floaters and who were looking to diversify their portfolios. The bonds were fully placed at launch into five asset-backed funds. Domestic investors, mainly insurance companies, were the targets for the Sing-dollar bonds. Although some of the double-A paper was unsold by Friday lunchtime, a source familiar with the deal expressed confidence that they would be fully subscribed by the deal closes on June 26.
As it is the first cross-border deal of its type, it is hard to find good comparable asset classes to price against. The Australian mortgage backed market may be closest in terms of quality property assets, but that market is extremely well developed in both the number of deals done and the size of transactions û typically approaching, or exceeding the $1 billion mark. Consequently, the type of pricing achieved on Aussie MBS deals û between 17bp and 20bp over Libor - would be unrealistic for the first Singaporean transaction.
Spreads will only start coming in significantly once the market sees a steady flow of deals and for significantly larger amounts than $144 million.
Rival property group CapitaLand beat Keppel Land as far as launching the city state's first securitization with a S$200 million deal in June 2001 through the Peridot Investments SPV. The transaction was split into four tranches, with ratings from Fitch going from triple-A to triple-B, with pricing ranging from 32bp over Sibor to 140bp over.
It was similar to the Keppel offering in that the transaction securitized cash flows generated from the sale of condominiums in three uncompleted apartment blocks, although the CapitaLand transaction was not done off balance sheet.
