Australand, an Australian residential developer and subsidiary of Singapore's CapitaLand, will make its securitization debut next week with a A$104.1 million ($56.2 million) commercial mortgage backed (CMBS) issue.
ANZ Investment Bank, the appointed lead manager, roadshowed the deal to investors last week and is expected to price the transaction around the middle of this week.
The deal will be backed by pre-sale contracts for units in the yet-to-be completed Quadrant Off Broadway development, located near Sydney's central business district. The Quadrant is made up of residential apartments (65% of project), commercial units (15%) and student accommodation (20%). So far, pre-sale contracts to the value of around A$139.3 million have been secured on the project.
Moody's has assigned a provisional rating of Aa3 to the transaction, largely because of a performance letter of credit (PLC) provided by ANZ (also rated Aa3). This mitigates any construction risk because in the event the project is not completed by February 2004, the PLC guarantees repayment of all principal on the bonds on the scheduled maturity date for the transaction, December 2004.
In any case, there should be no problems generating the necessary cash flows. Historically, the number of failed settlements associated with Australand apartments is less than 1.5%.
Sources familiar with the transaction say the deal should appeal to money managers because of its short maturity, as well as fund managers looking to add diversity to their portfolios.
It is also likely that investors looking for better spreads will be interested in the transaction. To date, CMBS activity in Australia has been dominated by been triple-A rated, multi-property transactions pricing between 17bp and 20bp over Libor, so a single-asset, double-A deal should offer buyers more in the way of yield pick-up.