Australand opens securitization account

Property investor''s debut securitization finds investors despite market conditions.

Australand, an Australian property developer and subsidiary of Singapore's CapitaLand, launched and priced its first securitization at the end of last week, a A$104.1 million commercial mortgage backed (CMBS) issue led by ANZ Investment Bank.

The deal is 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 the project), commercial units (15%) and student accommodation (20%).

Proceeds from the transaction will be used to finance the development of Quadrant and, to date; pre-sale contracts to the value of around A$139.3 million have already been secured.

The bonds, issued through the Quadrant Trust vehicle, have been assigned provisional ratings of Aa3 and AA- by Moody's and Standard & Poor's, largely because of the performance letter of credit (PLC) provided by ANZ (also rated Aa3). This mitigates any construction risk because should the project not be 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, the PLC should not need to come into effect as long as the project performs in line with other Australand developments. Historically, the number of failed settlements associated with the company's apartments is less than 1.5%.

The notes, which have expected average lives of 22 months, priced at 47 over one-month BBSW (Bank Bill Swap Reference Rate û the Aussie equivalent of Libor).

The deal was fully subscribed and placed into six accounts. Although ANZ would not disclose the investor types, it is believed the transaction attracted interest from money managers because of its short maturity, and fund managers looking to add diversity from their portfolios.

Investors would have also liked the yield pick up on offer, given that triple-A rated residential mortgage backed deals û traditionally the major source of activity in Australia û price between 17bp and 20bp with CMS deals around 10bp wider than that.

Nonetheless, both bank and client are believed to be very satisfied with the final pricing, given the recent state of the market. One investor told FinanceAsia that some triple-A rated CMBS issues are being kept on hold for the time being while the market settles down, as issuers would currently have to pay around 10bp more than they would have had to earlier in the year.

Richard Case, head of institutional sales at ANZ, says the key to Australand's deal was its straightforwardness. "We are pleased with the success of the issue given current market conditions," he says. "The demand and pricing reflects the simplicity and robustness of the structure."

"The issue gives the Group a cost-effective and flexible debt structure that is now a successful blueprint for future project development funding," states Phil Beale, CFO of Australand. "Shareholders will benefit from substantial savings in interest expense."

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