Asia's securitization market could finally be on the way to sustained issuance, according to Ben McCarthy of Fitch Ratings. Despite several false starts, a true asset-backed market is now emerging, he says, adding that 2005 will likely be the region's best ever year.
McCarthy, who was addressing a roomful of investors at Fitch's annual review of the Asian securitization and structured product markets, gave a presentation with a title that reflects the agency's positive view: This time it's real. Strong issuance in Taiwan and Singapore, green shoots of recovery in Korea, keen government backing in Hong Kong and the first signs of activity in China all point, for the first time, to a truly sustainable pan-Asian market, he says.
Every market in Asia, except for Korea, will record year-on-year growth in 2004 and some, such as Singapore and India, made huge strides. McCarthy notes that one significant difference from previous years - and the key reason for his optimism - is a new-found appetite among domestic investors for asset-backed paper. "The market has fundamentally changed," he says.
Deals such as Hong Kong's Link securitization, which packaged revenue from toll roads and included a ground-breaking retail tranche, hit the front pages across the region and brought securitization into the public consciousness. "For the first time I got to see a transaction that I was rating being advertised on TV," says McCarthy.
Taiwan is now emerging as a significant market, despite some scepticism about originators' rationale early in the year. "At first issuers came to the market without any fundamental need, just to show that they could. At the time we didn't think it was sustainable, but now we're seeing some people with genuine reasons for coming to the market. We've really seen a change."
Commercial mortgage-backed securitization soared in Singapore as a way of funding the Reits that have listed on the stock exchange. The rising popularity of single-tranche, investor-driven CDOs, most of which are managed in Singapore, was another new facet to the Singapore market in 2004 and one that is expected to become even more significant in 2005. Also, the Singapore government, loathe to let Hong Kong hog the limelight for too long, may bring a deal of its own to the market in 2005, according to McCarthy.
Korea has been a shadow of its former self since the implosion of the credit card firms. In 2002 Korea issued more asset-backed paper than Australia or Japan, with $20 billion of issuance from the credit card companies alone. By the end of September 2004 there hadn't been a single credit card deal and volume was half that of Australia. But there were some encouraging signs: the first unwrapped RMBS
"In the past we got excited, then found each time that the market had fallen away," he says. "Before the crisis there were deals in Pakistan, Indonesia, Thailand. That stopped overnight." Then in Hong Kong there was the property bubble and subsequently excess liquidity in the market that meant few originators needed to resort to structured techniques to get cheap funding.
This optimism is a far cry from McCarthy's tone at the end of 2003, when issuance levels had slumped and bankers were looking forward to 2004 with hope rather than expectation. "A year is a long time in finance," he says.
