CapitaLand Residential, a unit of Singapore's CapitaLand Ltd that specializes in building homes in over 17 countries, has set a precedent for the country's securitization market by launching the first deal to be rated by one of the three international credit rating agencies. HypoVereinsbank acted as sole lead manager on the transaction.
Fitch IBCA was chosen to rate the S$200 million ($110.2 million) issue, launched through the Singapore-registered Peridot Investments special purpose vehicle (SPV), which gave it extra creditability with international investors.
The transaction securitizes cash flows generated from the sale of luxury condominiums in three, as yet incomplete, apartment blocks located in Singapore: Palm Grove, the Loft and Sun Haven. Although only 40% of the construction work has been completed thus far, 71% of the units have already been sold.
The expected total sale value from the three sites is S$504.2 million, set against expected total construction costs of around S$166.435 million.
The deal was split up into four tranches, each with an expected life of six years and a legal maturity of nine years. The S$160 million senior notes, rated triple-A, carries a fixed-rate coupon of 3.71%, which equates to 32 basis points over six year swaps.
The S$18 million double-A rated tranche priced at 3.83% or 44 over swaps; the S$12 million of single-A rated bonds were offered at 4.09%, 70 over; and the subordinated S$10 million piece, rated triple-B, carry a 4.79% yield, 140 over swaps.
Pricing for the three senior tranches came in around a basis point from the initial price talks of late last week.
The actual structure used for this transaction, which is the first offering from CapitaLand Residential's S$500 million program, is a straightforward generic pass-through structure. Essentially, protection for the triple-A investors comes from subordination on the other tranches.
In addition, extra insurance will come from 41.2% over-collateralization, a cash reserve fund that will come from available excess spread, as well as an S$80 million completion guarantee provided by HypoVereinsbank. This high level of credit enhancement was necessary in order to achieve such a high credit rating.
The lead manager marketed the deal internationally and a source close to the deal said there was a good level of interest shown from offshore bank accounts, asset managers and pension funds.
The source argues that the deal is significant in bringing the Singaporean ABS market up to international standards. "The deal is significant because the deal looks, walks and talks like a proper securitization and the proof in the pudding is that it has received a rating," he says. "A lot of deals in Singapore have been called a securitization but they were not because, for example, assets remained on balance sheets and there were clauses involved that you would not expect with an international standard deal."
"We chose Fitch because they have done a lot of work in Singapore and they were the only agency that has published a mortgage default model for Singapore, which we used when structuring the deal," he adds.
The official believes the healthy international interest in the deal was a result of good credit quality in Singapore as well as a scarcity of ABS deriving from South East Asia. "International investors have a huge interest in this product but their access to south-east Asian deals has been limited and there has been none from Singapore," he says. "Singapore is a country which they [investors] are very comfortable with, so with that in mind, and the difficulty overseas investors face in getting hold of higher yielding assets, this deal offers good value."
The banker also feels potential issuers could benefit from securitization by being able to diversify their funding needs away from their traditional lending sources, adding that a couple of other Singapore companies had shown serious interest.
CapitaLand Ltd. was formed after the merger of Pidemco Land and DBS Land in November 1999 and is the largest listed property group in south-east Asia.
