A-Reit returns to international capital markets

Singapore continues to breathe life into Asian securitization.

BNP Paribas will begin roadshows next week for an Eu181m ($237 million) commercial mortgage-backed securitization (CMBS) for Ascendas real estate investment trust (A-Reit). The deal will mark the second offering from A-Reit's MTN programme and the second international securitization out of Singapore so far this year following Suntec's super tight deal in late March.

A-Reit's transaction, issued via SPV Emerald Asset Trust, will have an FRN structure with a maturity of November 2013. It will be collateralized by a loan advance of S$350 million to S$385 million and secured by 23 A-Reit owned industrial properties located throughout Singapore, although the client has yet to determine the final size of the issue.

HSBC will act as Trustee, while BNP Paribas will provide liquidity and the swap counterparty. Fitch and Standard & Poor's have given the notes a preliminary AAA rating.

Last July, A-Reit's initial CMBS comprised a five-year Eu144 million issue, with pricing at 33bp over Euribor. This represented a premium of about 10bp over similar European credits.

Bankers say the deal benefited greatly from the fact it was priced in Euros, with European investors accounting for 70% of a book that closed 2.5 times oversubscribed.

A-Reit's debut co-incided with a second CMBS deal by Singapore's CapitaMall Trust (CMT). The retail mall operator raised $195 million from a similar five-year deal, which secured pricing of 32bp over Libor. The slight difference between the two can largely be explained by the fact that industrial Reit operators such as A-Reit typically need to pay a premium over retail operators such as CMT

Since then, retail mall operator Suntec City has come to market with an Eu320 million deal priced in late March. The Platinum AC1 deal had a five-year maturity and aggressive launch spread of 16bp over Euribor. This represented an extremely slim 2bp premium over similarly rated European credits such as Prologic, which had just come to market before it with an Eu389 million deal.

A-Reit's challenge will be to achieve a similarly tight pricing differential in markets, which have noticable weakened since then. Although the securitization sector is not suffering the same degree of volatility and nervousness as the international bond markets, bankers have noticed signs of weakness.

Notes one industry observer, "There've been rumblings in the market, with investors beginning to say that issuers are no longer pricing in risk." Indeed, over this past week the ABS market in New York has pushed out 8bp, while credit swaps in Australia have moved out 5bp, and widened 3bp in Asia.

The deal may, however, be bolstered by the fact that Singapore's burgeoning Reit securitization sector is beginning to gain real traction with European investors who are now very familiar with the credit story. It may also be underpinned by A-Reit's recent results.

The group has just reported FY05 net income of S$75.2 million, slightly higher than analysts' forecasts. Over the past year, it has made a number of sizeable and yield accretive acquisitions - boosting its investment portfolio by S$1 billion to S$2 billion. It says a further S$900 millioin of acquisitions are currently under negotiation.

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