Danaharta, the state-owned Malaysian asset management company (AMC) set up in 1998 to clean up the non-performing loans problem faced by financial institutions, has launched its long awaited first asset-backed securitization in a M$310 million ($81.6 million) deal. Alliance Merchant Bank and Deutsche Bank acted as joint lead managers on the transaction.
The two banks were mandated in June, with Deutsche fending off rival bids from Credit Suisse First Boston and Merrill Lynch to win the international advisory position.
One rumour currently doing the rounds is that Deutsche took a significantly reduced fee to guarantee its involvement on the deal. However, it is more likely that Danaharta was swayed by Deutsche's involvement on last year's successful $367 million international offering by Kamco, the Korean equivalent of Danaharta.
That deal, which was jointly handled by UBS Warburg, was the first Asian cross border deal to be backed by non-performing loans and scooped FinanceAsia's best asset backed deal award.
Danaharta is widely expected to follow Kamco into the international market at some point next year, and a successful domestic debut would put Deutsche in prime-position to get that mandate as well.
Danaharta's deal, a collateralized loan obligation (CLO) launched through the Securita ABS One special purpose vehicle, is backed by a portfolio of M$570 million rehabilitated loans that have been performing for an average of 17 months. Of these loans, around 60% come from the property sector.
Rating Agency Malaysia has rated the M$310 million senior notes triple-A. These, which will price by December 10, have a maturity of five years and will pay a nominal coupon of 4%.
These bonds will be placed privately through a bookbuilding process, according to officials at both leads.
In addition, Danaharta will also hold M$284 million of subordinated bonds, the equivalent of 45% credit enhancement to the senior notes.
Although some hoped that the initial deal would be bigger: the issuer has rehabilitated some M$2.3 billion of loans that have performed for over a year, Encik Hafiz, managing director of Danaharta, says this was to be expected for a first offering
"This is the first, but certainly not the only issue of asset-backed securities by Danaharta," he says. "This issue is not a large one. But, the idea is to initiate the securitization process this year and develop our knowledge and skills, while testing the market's appetite for such securities."
Some might suggest that Danaharta has been wise to proceed with caution and to offer a generous coupon, as it is believed that Malaysian investors are not overly enamored by ABS paper.
Although it very much early days - The Securities Commission only launched its guidelines for ABS issuance in April - there have been suggestions that the first domestic deal to emerge from Malaysia was not an overwhelming success.
In September, Arab-Malaysian Merchant Bank, launched a M$255 million collateralized bond obligation (CBO) through the Prisma Assets SPV. RAM rated the M$225 million senior notes triple-A, but some sources suggest the deal was extremely tough to place because of investor skepticism.
"I think there's a feeling that Malaysian investors are finding securitization extremely challenging and it has been difficult to generate enthusiasm," comments one banker from Kuala Lumpur. "They can buy Malaysian government securities and triple-A corporate paper, investments they understand fully."
In light of this, the banker feels that the leads have taken a sensible approach in pricing the paper. "4% is a wide coupon for five-year triple-A paper, considering you could get Telekom Malaysia for 3.5% and five-year government paper is being quoted at around 3%, the banker adds. "The underlying portfolio is also heavily skewed to property and investors want less exposure to that at the moment. The deal has been priced to sell and I think you have to be generous at this stage to get the market going."
